ReportNo. 6928&BR SectorReport Brazil AgriculturalStorage and Marketing Review Public Disclosure Authorized

March2,1989 BrazilAgriculture Operations Division (LAlAG) LatinAmerica and the CaribbeanRegion

FOR OFFICIAL USE ONLY

Public Disclosure Authorized H

-N Public Disclosure Authorized Public Disclosure Authorized Documentof the WorldBank

Thisdocumnnt has a restricteddistribution and may be used by recipients onlyin the performanceof theirofficial duties. Its contents may not otherwise bedisclosed without World Bank authorization. . / i'- ! CURRENCYEQUIVALENTS

CurrencyUnit 1 Novo Cruzado(NCz$) (after 1189) Cruzado (Cz$) (after2/86) Cruzeiro (Cr$) (prior to 2/86)

AverageExchange Rates

1986 1987 19882

US$l = Cz$13.654 Cz$39.22; Cz$225.267 Cz$1 = US$0.073 US$0.025 US$0.004

QuarterlyExchange Rates

IwaS 1906

ULS$ CU86.798 Ca$9.009 Cz$12.M C&81.840 Cs$13.40 Cz$14.20 Cdll *US0.14? US$0.111 1$00.0?9 U0.072 US$0.72 US.70

1W?s 1988

2 I iI Iln IV I It III IV US$1 * Cx$18.290 CA34.27 C1d47.31 CM0.0W C8291.68 CaS109.66 CZ29.8S Ca$468.93

CAI = UWSO.08 US$0.021 US$0.021 US$0.017 UM.011 US$0009 U50.004 US0.002

Weightsand Measures

Metric US/BritishEquivalents

1 hectare (ha) 2.47 acres 1 kilometer(km) 0.62 miles 1 kilogram(kg) 2.20 pounds 1 liter 0.2642gallons 1 barrel 159 liters 1 bag 50 kilograms 1 ton 2,204 pounds

Acronymsbegin on page 62

1/ The Braziliancurrency was changedfrom the cruzeiro(Cr$) to the cruzado(Cz$) in February1986, at the ratio of Cr$1000= Cz$l. On January16, 1989, the currencywas again changedto the novo cruzado (NCz$)at the ratio of Cz$1,000= NCz$l. All currencyreferences in this reportare in Cz$-

2/ Average January - November.

3/ January to November. FOR OFFICIL, USE ONLY

BRA2IL

AGRICULTURALSTORAGE AND MAP.UTING REVIEW

Table of Contents

Page No.

List of Tables in Text ExecutiveSumeary ...... I...... i - vii Resumo Ezecutivo ...... ix - xvii

t. BRAZIL'SAGRICULTURE AND MARKETING SYSTEMS ..... 1...... A. Introduction...... 1 B. Brazil'sAgricultural Sector ...... 2 C. GrainMarketing Systems .. * ...... 6

II. STORAGE INFRASTRUCTURE...... 8

III. PUBLIC SECTOR ROLE IN STORAGE .. .. 17 A. Introduction .... 17 B. Legal Fram_vork . .. C. Public SectorInstitutions ... 19 D. OfficialStorage Policy and Programs . . . 22 E. Issuesand Recovmendations...... F. SecurityStocks . 2

IV. ECONOMICAND FINANCIALISSUES ...... 31 A. Economicsof Stockholding...... 31 B. Stock Financing...... 37 C. StorageCosts and Returns to Invesbment . . . 40 D. StorageTariffs . .. 45

V . RELATED'4ARKETING ISSUES ... . 48 A. Transport...... 48 B. Classificationand Grading . . 51 C. Market Information...... 52

SUI2MARYOF RECMO)ONDATIONS. 5 . . . 55 BIBLIOGRAP 9...... ACRONS ...... 62 GLOSSARY..... 66 STATISTICALAPPENDIX ... 68 ANNEXES: I. Projectionof StorageNeeds .89 II. The StorageSector . . 105 III. Public Sector Involvementin Storage . .113 IV. SecurityStocks . .. 121 V. StorageInvestment and OperationsCosts . .126

MAPSt IBRD 20441 IBRD 20442 IBRD 20444 IBRD 20449

This docurnent has a restticteddistribution and maybe used by recipients onlyin the performance of their offlial duties. Its contents may not otherwise be disclosed without World Banlc authoriztion. BRAZIL

AGRICULTURAL STORAGE AND MARKETING REVIEW

List of Tables in Main Text

Table 1.1 Structure of Crop Production, 1966-1986 1.2 Regional Importance of Crop Production, 1986

Table 2.1 Storage Capacity and Ownership, 1985/86 2.2 Storage Balance Sheet, 1984/85 2.3 Summary of Projected Static Storage Needs for all Commodities, 1992 2.4 Storage Ownership (1985)

Table 3.1 Major Public Sector Institutionsin Storage 3.2 Government Goals for Grain Storage Expansion 3.3 Credit Lines for Storage Investments

Table 4.1 RepresentativeStorage Construction Costs per Ton 4.2 Comparison of Cost Structure 4.3 Comparison of Storage Costs 4.4 Selected Storage Tariffs for Grains 4.5 CIBRAZEH Rate Increases Since 1979 -i-

BRAZIL

AGRICULTURALSTORAGE AND MARKETINGREVIEW

EXECUTIVESUMMARY

1. In 1987 Brazilhad a recordharvest of 65 millionmt of grai:.sand oilseeds,an increaseof 201 over previous years. The bumperharvest was both a blessingand a curse,as Brazilfaced yet anotherstorage crisis and the Governmentwas forcedto purchase millions of tons of grain under its minimumprice program. The severityof the 1987 storagecrisis was directly causedby the sharp increasesin grain production.But the fact that there was a storageshortfall and that the Governmentintervened in agricultural markets- and that such shortfalls and interventionsocurLed regularly throughout the lact twenty years - had much to do with existing disincentivesfor Rtockholdingand storageinvestment, and with far-reaching public sectorinvolvement in storage,marketing, and pricing.

2. Brazilis the world's eighth largest economy, and a major world producerof grains,particularly soybeans and maize. Yet the full potential of its producersis constrainedby an underdevelopedmarketing system, lack of stock financing, and excessive Government interventions. Aside from disincentivesto production, the net impact of this situationhas been inefficientmarkets, eroding Brazil's competitivenessin world marketsas well as affectingdomestic food prices.

3. In responseto worsening shortages of storagefacilities and low privatestockholding, the Governmentof Brazilis seekingto increasepublic and private investment in storage, while expanding stock financing opportunities. To date, it has developed ambitious plans to increase investmentprimarily through credit programs. But effectivestorage policy must provideboth incentivesto hold stocks as well as incentivesto build warehouses. In fact,many of the benefitsassigned to buildingstores come from holdingstocks: market stabilization,added value of inventories,food security.

4. The purposeof this reportis to contributeto debateson marketing policiesin Brazil. The report containselements of storageand marketing policyto assistthe Governmentin providingthe frameworkand incentivesto modernizeBrazil's marketing and storage systems,while meetingGovernment concernsover market stability, food security, public expendituresand exportcompetitiveness. The key starting point is that the privatesector will not hold stocksand invest in storageunless incentives are adequate. The Government,by default,would increasinglybe responsiblefor stocksand storageservices. Yet this option would be more expensive,less efficient and less effectivethan expanding commercial marketing and storage. The reportconcentrates on basic foodgrains (maize, rice, beans,wheat and soybeans)because these figureimportantly in both the agriculturaleconomy and in recentstorage crises. - ii-

StorageInfrastructure

5. Brazilsuffers from a shortage of storagefacilities. Brazil's storageinfrastructure in relationto production is far less than in many developedcountries. Total usable storage capacity is 60 millionmt, in contrastto total agriculturalproduction requiring storageof 76 million mt. While there is no magic numberrelating production to storageneeds, the aggregatestorage deficit is at least 10 millionmt and is projectedto reach some 50 millionmt by 1992 (assumingno new investmentin facilities and a continuationof current trade policies). These aggregatestorage needs could be reducedsomewhat if Brazilmodified its generallyrestrictive trade policiesfor major grains. These aggregate deficitfigures mask importantshortages of storage types (bag or bulk) and imbalancesamong regions. The southerr. states are the best-endowedwith storage infrastructure,but will require the most new investment as Brazil's marketingsystem increasingly moves towardbulk grainhandling.

6. On-farmstorage remains astoundingly low, accountingfor only 3X of capacity. Reasons for low levels of on-farm investment include:a) dependenceon off-farmprocessing facilities(for coffee,sugar, soybeans); b) limitedavailability of investmentand marketing credit; c) lack of incentivesfor holdingstocks; and d) highercosts relativeto cooperatives. The singlemost effectiveincentive for increasingproducer storag6 would be to expandcommercial stock financing (para. 20). In additionto lowerstock financingcosts, on-farm storage could increasinglybecone attractiveto cut down on transport and processing costs and to compensate for lack of commercial infrastructurein frontier area3. Expanded availabilityof investmentcredit would also be important.

7. Off-farmstorage investment has been discouragedby many of the same factorsaffecting on-farm investment, particularly limited availability of credit and lack of incentives for holding stocks (para. 15). In addition, competition from public companies has discouragedinvestment (para. 9), while volatile Government marketing policies increase uncertainty.

PublicSector Role in Storage

8. A centralissue for the developmentof t.hestorage subsector in Brazilis the natureand extent of Governmentintervention in stockholding and storageactivities. The Government presentlyplays a major role,both directly (supplvingand using storage services) and more importantly, throughits polities (agriculturalpricing, interestrates, management of Governmentstocks, storage tariffs, subsidized credit, inflation and trade), which shapepatterns of stockholdingand storage investment,as well as market competition and efficiency. The net resul.tof Government intervention,far from its intention,has been to discourageprivate sector stockholdingand investment in storage facilities,and to destabilize agriculturalmarkets.

9. Publicsector intervention in storageremains pervasive and poorly coordinated,despite recent policy statementsaiming to narrowand refocus directGovernment involvement. One key point is the role of the public sector in providing direct storage services through CIBRAZEM(Federal - iii-

StorageCompany) and the state storage companies. Performanceof these companieshas beer.uniformly poor, and they have not, overall,fulfilled their original mandate of providinTg storage services and promoting competitionand investmentwhere thesewere lacking. In fact, operationsof the public storagecompanies have provideddisincentives to privatesector investmentin some regions. At the same time,Government storage policy has focusedexcessively on storage investmentprograms, while failingto take into accountthe impact of pricing, marketing and financialpolicies on stockholdingincentives (para. 14).

10. One of the most important steps which the Governmentcan take to stimulatedevelopment of an efficient system of stockholdingand storage facilitiesis to reducethe interventionand activitiesof the publicsector in storageand marketing. The Gcvernment needs to focus its effortsmuch more narrowlyon the functions which governmentstraditionally perform well (essentiallyregulation and oversight) and decreasedirect participation, while shiftingthe focus of policies to improvingincentives for private sectorparticipation. Recommendations are to: a) divestthe publicsector storagecompanies and increaseuse of privatesector facilities for official stockprograms; b) increasepublic sectorstorage tariffs to marketrates in the short term (para.26); c) improvelicensing, supervision and inspection of storagefacilities; d) improve coordinationof Governmentstorage policy and activities;and e) decrease direct Governmentmarket interventionand stock holdingprograms.

Food SecurityPolicy

11. The Governmenthas recently been discussingestablishing security stocksof basic foods (rice, wheat, beans, powderedmilk and meat), in an effortboth to stabilize domestic markets andl to providefor emergency shortfalls.These plans raise important questionsconcerning the cost and impactof such a program,questions which have not yet been well debatedin Brazil. Large buffer stocksare expensive,difficult to manage,potentially destabilizing,and relatively ineffectivein achieving food security. Estimatedcosts of a 5 million mt security stockwould be US$765million over the first two years and US$140million thereafter; in comparison,the importbill for grainswas US$823million ',n,986 and only US$373million in 1987.

12. An optimumfood securityRolicy would be to dependon international grain markets for unforeseen food deficits, while encouragingthe maintenanceof adequatestocks throughout the commercialmarketing system. The key to price stabilityand food security lies in the developmentof a modernmarketing infrastructure using all availabletechniques of hedging, arbitrageand stock financingto reduce the risks inherentin storingand tradingagricultural commodities (para. 14). Developmentof futuresmarkets and freeing external commodity trade would provide greater price stability than the current minimum price program. It would provide incentives for the privatesector to hold stocks, thereby drastically reducingthe need for costlyGovernment stock programs. Futures marketsmitigate price risks, encourageprivate stockholding and provide informationon expectedfuture price trends,demand and supplybetter than the Governmentcan. -iv-

13. If, for political reasons, a minimum Price program is deemed necessary,one shouldbe operated at the lowest possiblecost, with the least negativeimpact on domestic markets. This would includesetting minimumprices at below marketprice trends,minimizing Government purchases and stockholding,and defining clear rules for Government market interventionand stock sales. Currently,improvements are urgentlyneeded in the Procurementand handling of Governmentstocks, including: a) unified stock management under one agency and issuance of clear rules for procurementand sales;b) reduced minimum stock levelsand use of imports and exportsto adjust stocks as needed; and c) clarifiedinstitutional responsibilitiesand improvecoordination.

Stockholding

14. From both an individual and national perspective,providing incentivesfor privatesector stockholdingand investmentin expandedand improvedstorage facilities brings benefits. For the individualproducer, processoror trader,the most obvious benefitis the prospectof increased returnsfrom price increases (although this also carriesrisks of price falls). Other benefitscan be summarizedas the convenienceyield, relating to smoothingsupplzes or evening out transport demand. From the economy- wide perspective,stocks help stabilize marketsand reducecostly emergency interventionsduring food shortfalls;provide potentially increasednet foreign exchange earnings; and improve marketing efficiency,thereby increasing competitivenessand helping keep domestic food priceslow. Adequateand technicallyup-to-date storage facilitiesreduce the costs and increase the efficiency of stockholding and marketing activities, particularlyas the countrymoves towardbulk handlingof grains.

15. Inflation, Government price controls and foreign exchange managementall affect the incentives to hold agriculturalstocks or to investin storageinfrastructure. In Brazil, these incentiveshave been distortedby a) the extremely high cost of financinginventories due to inflationand high real interest rates; b) increaseduncertainty and risk due to volatileand unpredictableGovernment market interventions(such as price controlsand export bans); and c) use of commoditiesas financial assets, to hedge the risks of large domestic currency devaluations. Clearly,any framework of incentives for encouragingstockholding must provides i) reasonably priced commodity fi-.ancingopportunities; ii) decreased Government interventionand clear "rules of the game* for commoditymarkets; and iii) compensationfor stockholdingrisks. The key to providingthese incentivesis developmentof futuresmarkets (para.17) and collateralstock financing(para. 22).

16. The willingness of market participants to hold stocks of agriculturalcommodities is a crucial element in creatingstable domestic markets. Agriculturalstorage requirements and price mov6mentshinge on the seasonalpatterns and size of harvests. In Brazil,this is complicatedby variationsin seasonalpatterns among regions,as well as betweenBrazil and the rest of the world (especiallyfor soybeans). Greatertrade flowswould reduce the need for stockholdingwhile increasing the efficiency of agriculturalproduction and marketing;this is one major benefitof freeing commoditytrade in Brazil. The Governmenthas been concernedthat excessive speculationand hoardingthrough private stockholding could help destabilize domesticfood markets. However, examinationof past experiencewith market "squ2ezes"in Brazilhave highlightedthat most supplydisruptions have been causedby ill-consideredGovernment actions (such t.s price controlsand trade bans) which have prevented the private sector from maintaining adequatebuffer stocks.

FuturesMarkets

17. Organizedfutures market trading is the instititionallink between non-speculativestockholding and the price stabilization,buffer stock and marketingobjectives discussed aoove. In a developedmarketing system, risk is managedthrough increasing market transparencyand througha commodity futuresmarket. Increased transparencyis achievedthrough an integrated systemof cash markets and good market informationsystems, which assist participantsin makingdecisions based on good knowledgeof supply,demand and price movements. Use of a futuresmarket allowsfarmers, traders and processorsto mitigatethe risksof stockholdingby hedging. The existence of efficient and reliable futures markets also assistsstockholding by transformingspeculation in commodity prices into a price stabilizingand value-addingactivity.

18. Hedgingwould bring major benefits to Brazilin terms of increased possibilitiesof externallending for stockholding,as it reducesthe risk of extending credit for stocks. Hedging opportunitiesalso stimulate investmentin storage facilities by reducing the risks of being in the trading or processing businesses. The developmentof liqi.dforeign exchangefutures markets is aleo importantfor rationalizingstockholding in Brazil,by providingopportunities other than the use of commoditystocks to compensatefor foreignexchange risks.

19. Governmentworking groups organized under the Creditand Markcting ReformProject (Ln. 2727-BR) have made detailedrecommendations on actions needed to developdomestic futures trading in Brazil. Major steps includes i) improve access to external futures markets, possiblythrough making foreignexchange available for hedgingthrough registered commission houses operatingin Brazil;ii) developdomestic futures markets, which will depend on changingexisting tax regulationsdiscriminating against profits from domesticfutures trading; iii) introduce a liquidfutures market in foreign exchange;iv) improve market informationthrough integratingthe grain exchanges, including national price reporting and stock information networks;and v) improvemarket informationsystems (para. 29).

Stock Financing

20. Lack of financefor commodity stocks is a major constrainton the developmentof an efficient and reliablecommercial stockholding system in Brazil. The mair. problems are the high real cost of short term loans coupledwith uncertainavailability of finance. The resulthas been less flexibilityin producer marketing decisions, decreasingmarket efficiency and farm incomes, as well as high domestic marketing costs affecting internationalcompetitiveness.

21. The Governmentminimum price program(EGF - FederalGovernment Loan Programand AGF - Federal Government Buying Program)which includesboth stock financing(EGF) and crop purchases (AGF),provides a major sourceof -vi- stock credit,over US$2.3billion in 1986/87. But the significantcosts of the subsidies provided by these programs have limited the amountof resourcesthat the Government can allocate each year and increasedthe program'svariability, since it is subjectto short-termfisca1 decisions. Justificationfor Government involvementin stock financing and price supportincludes support for small farmersand price stabilization.Yet EGF ftundshave mainly gone to large farmers, in the most developedregions of the country,mainly for soybeans. Moreover, the existence of the EGF program has c.nstrained the development of other stock financing opportunitieswhich would contributemore to market stabilization. As EGF and AGF are linked(farmers usually participate in EGF or in both programs). AGF has had a similarly limited impact on small farmers. Government disposalof AGF stocksmay actually destabilizeprices. To the extentthat these programs substitute for private stockholding,markets are more unstable.

22. A Governmentstudy group under Ln. 2727-BRexamined problems of stock financingand minimum prices and made detailedrecommendations to develop commercial stock financing in Brazil under a program called PROSTOCK. The ultimate objective is to replace the EGF programwith a systemof commercialstock financing, namelystorage warrants and bankers' acceptances,which is widely used throughout the world. Storagewarrants are certificatesguaranteeing the existence of graded agricultural commoditiesin bondedwarehouses, backed by insuranceand usuallyhedged on futuresmarkets. The key to their development is that they shouldbe credibleto buyers and lendersin terms of qualityand quantity. Bankers' acceptances are easentially mortgages on these bonded agricultural commodities.They are highly attractive to bankers (as they are traded securities)and a cheap sourceof financeto tradersand producers.

23. Importantsteps to establish such a system in Brazilare: i) establishstorage warrants as financial instruments,together with the necessaryregulations and institutionalsupports (clearinghouses);ii) in parallel, develop the oversight and supervisionrequired for market confidencein warrants;and iii) developdomestic futures markets to manage the risks inherentin financingstocks (para.17).

24. On minimum pricing, we recommend that: a) price stabilization policy focus on market stabilizationthrough incentives for stock-holding, opportunitiesto mitigaterisk, and liberal trade policies; and b) if a price supportprogram is deemed politicallynecessary, it shouldoperate as a true safetynet program, with prices set below market levelsand clear rules for procurementand disposalof stocks.

StorageTariffs

25. Remunerativetariffs for storage providers are an important incentivefor encouragingprivate investment in storagefacilities and for containingpublic storage companies' losses. The Governmenthas, in the past, only regulatedprivate sector tariffs loosely. Tariffpolicy in the past few years has varied: price freezes in 1986 and 1987 introduced nationwide controls, while several interest groups are advocated panterritorialstorage tariffs and increasedFederal regulation. However, in a countryas large and diverse as Brazil, panterritorialtariffs would increasemarket distortions and furthererode the profitabilityof providing -vii- 00 * - storageservi'.es. Presently, storage tariffs remainuncontrolled. In the public sector, storage tariffs have lagged behind inflation and, most importantly,have not covered capital and depreciationcosts, the major componentsof storagecosts. Artificiallylow publicsector and cooperative tariffshave proveda disincentiveto privateinvestment, while leadingto high subsidiesfrom the Federaland state governments.

26. Recommendedelements of a storage tariff policy ate: i) allow storagetariffs to be set freely by storageproviders; ii) incrsasepublic sectorstorage tariffs to cover costs including depreciation(and in the long term, divestpublic sectot companies, para. 10); and iii) improvethe qualityof storag,eservices through bettersupervision and licensing(para. 10) to deal with concernsabout price-gougingand competition.

RelatedMarketina Issues

27. Development of low-cost transport is a pressing need for Brazil's agriculturalsector. The most urgent need is to reducetransport costs for bulky grains,to maintain Brazil'scompetitiveness in internationalmarkets and to improvedomestic marketing efficiency. The Bank is preparinga study of transportproblems of the cerrado states. The priorityfor improving infrastructureshould be the major producing areas of the country,not expansioninto new territories.

28. Developmentof commercial stock financing and modernmarketing systems depends on improved classification and gradina and market information.The lack of a trustworthyand easilyavailable system of productclassification, based on national standards,erodes confidence in storagewarrants and commoditytransactions. Steps recommendedinclude: i) modernizingand simplifyingcurrent standards and grades; ii) allowing lice~nsedwarehouses to provide grading services; and iii) encouragingthe use of privatecompanies for classificationand grading.

29. Brazil'smarketing systems are also constrainedby a lack of adequatemarket information,which decreasesmarket transparency and affects decisionmaking. Problems include multiple institutionsgathering data; inconsistentand incorrectdata; and poor informationdiffusion. To address these problems,a Governmentworking group has recommended:i) nominationof IBGE to coordinatethe collection of agriculturalstatistics: ii) improved data disseminatior.,Jncluding regular channels and schedules for data release;iii) more attentionto methodologyof data collectionand analysis; and iv) mprovedstaffing, training and supportfor data collection.

InvestmentNeeds

30. Projectionsof storageneeds indicatethat increasedinvestment in storagefacilities will be critical over the next decade,on the order of US$2 to 3 billion. However, merely providing resources for storage investmentwill not solve the problemsof distortedstockholding and market destabilization.The most urgent need is to addressthe disincentivesto stockholdingand investment,particularly reducing Government interventions and providing stock financing and risk reductionopportunities (through futuresmarkets). As theseproblems are being tackled,a storageinvestment programwould be appropriateand would bring importantbenefits to Brazil's -viii- marketingsystems. It is recommendedthat additionalresources for storage investmentbe providedthrough a general line of credit (suchas PRONAGRI, supportedby Loan 2268 and Loan 2960), rather than credittied only to storage,to increasecredit flexibilityand optimum use. This would be consistentwith the Bank'soverall recommendations on agriculturalcredit. - ix-

BRASIL

EXAMEDA ESTOCAGEHE COMERCIALIZACAOAGRICOLA

RESUHOECUTIVO

31. Em 1987, a colheita de graos e sementes oleaginosasdo Brasil elevou-seao volume sem precedentesde 65 milhoesde t, superiorem 202 ao de anos anteriores. Essa supersafra significou tanto beneficioscomo problemas,jg que o Brasilse viu a bra,oscom nova crise de estocageme o Governose viu forcadoa comprarmilhoes de toneladasde graos,no ambitode seu programade pregos minimos. A severidade da crise de estocagemfoi consequ8nciadireta do acentuadoaumento da producIode graos. Contudo,a insuficienciade estocageme a interven9lodo Governono mercadoagricola - e a regularidadecom que se repetiramessas insuficienciase interveng5es nos (altimos20 anos - sao fato que tiveram muito a ver com os atuais desincentivosI manutencOde estoques e aos investimentosem estocagem,e com o amplo envolvimentodo setor pdblicoem estocagem,comercializaflo e fixagaode pregos.

32. 0 Brasil6 a oitavaeconomia do muado e grandeprodutor mundial de grios,principalmente soja e milho. Contudo,um sistemade comercializacao subdesenvolvido,a falta de financiamentopara estocagem e a excessiva interven9Aodo Governo impedem os produtores de realizar todo o seu potencial. Alem dos desincentivosI producIo,tal situagaotem resultado, em filtimaanalise, maior instabilidadede mercados,e mercadosineficientes, erodindo a capacidade de concorrgncia do Brasil no mercado mundial e afetandoos pregosinternos dos alimentos.

33. Reagindoao agravamentoda carOnciade instala9Oesde estocageme & baixa manutengloprivada de estoques, o Governodo Brasilestt procurando aumentaro investimentoptblico e privado em estocagem e expandiras oportunidadesde finenciamentode estoques. Para tanto, j& preparou ambiciososplanos de incremento dos investimentos,principalmente por meio de programasde credito. Mas uma eficiente politicade estocagemdeve oferecer incentivos tanto para a manutenglo de estoques como para a construcaode armazens. De fato, muitosdos beneficiosatribuidos a essas construc.esprovOm da manuten9Ao de estoquest estabiliza9ftodo mercado, maior valor dos inventtriose segurancaalimentar.

34. 0 prop6sitodeste relat6rio6 contribuir para os debatesem torno das politicas de comercializagaono Brasil. Ao incluir elementosde politicade estocageme conercializalo,o relat6riovisa a ajudaro Governo a oferecera estrutura e os incentivos para modernizar os sistemasde comercializaeioe estocagemdo pais e a part,.ciparde suas preocupacOesem matdriade estabilidadedo mercado,seguranga alimentar, despesas pdblicas e conpetitividadedas exporta9Oes.Cumpre considerar, antes de mais nada, que o setor privado nio manter6 estoques nem investira em estocagemse nao houver incentivos adequados. Omitindo-se, o Governo arcaria com responsabilidadeainda maior pelos estoques e servigos de estocagem. No entanto,essa op9ao seria mais dispendiosa,menos efetivae menos eficiente do que a expanslo da comercializa9goe estocagemcomercial. 0 relat6rio concentra-senos grios basicos (milho,arroz, feijao, trigo e soja) devidoa importanteposiglo que ocupam na economia agricola e na recentecrise de estocagem. A infra-estrutura-daestocaRem

35. 0 Brasilpadece de insuficiOnciade instalac8esde armazenamento. No entanto,a estruturade estocagemno Brazilem rela9aoa producAoe muito menos do que em variospalses desenvolvidos.A capacidadetotal utilizavel e de 60 milh6esde t, em contraste com uma produgloagricola que exige a estocagemde 76 milh6esde t. Emboran8o existan6mero magico que relacione a producaocom as necessidadesde estocagem, o deficitagregado 4 de pelo menos 10 milhOesde t e, segundoas proje96es,chegara a cerca de 50 milh8es de t em 1992, (na hip6tese de quo nao ha3a novos investimentosem instalacoese continuagio da politica de comercializacao). Essas necessidadesde deficitpara estocagem poderiam ser reduzidasse o Brazil modificassea sua restritapolitica para comercializa9iode granel. Essas cifras de deficit agregado ocultam importantescarOncias de tipos de estocagem(em sacos ou a granel) e disparidadesentre regi6es. Os estados do sul, embora melhor dotados com instrutura de armazenamento,tambem requereraoa maior parcela dos novos investimentos,na medida em que o sistemade comercializa.1odo Brasil se orienta cada vez mais para as operacoesde estocagema granel.

36. A estocaaemao nivel da fazenda continuaassombrosamente baixa, representandoapenas 3Z da capacidade. Os baixosniveis de investimentona fazendadevem-se Is seguintesrazoest a) a dependOnciade instala;oesde processamentofora da fazenda (cafe, ag4car e soja); b) a limitada disponibilidadede creditode investimentoe comercializacao;c) a falta de incentivospara a manutenc&o de estoques; e d) o custo maior do cultivo isolado.0 incentivoparticular mais eficiente para o aumentoda estocagem na fonte produtoraseria a e'Pansgodo financiamentodos estoquescomerciais (v. paragrafo20). Alem de diminuiros custosdo financiamentode estoques, o armazenamentona fazenda poderia revestircrescente atividade como forma de reduziros custosde transporte e processamentoe compensara falts de infra-estruturacomercial nas areas-fronteira.Igualmente importante seria expandira disponibilidadede cr4ddtode investimento.

37. Vtriosdos mesmos fatores que estao afetandoos investimentosem estocagemao nivel da fazenda vOm tambemdesencorajando os investimentosem estocagemao nivel externo, sobretudo no que diz respeito a restrita disponibilidadede credito e a falta de incentivos em acumulaciode estoques. Alem disso, a complicagcocom as companhias estataistem desincentivandoos investimentos(v. paragrafo 9) assim como a instivel politicade mercadodo governovem aumentandoo nivel de inseguran,a.

O pavel do setor pablicono subsetordo armazenamento

38. Questaocentral para o desenvolvimentodesse subsetorno Brasil4 a naturezae extensloda intervengiodo Governonas ats.vidadesde estocageme manutenq9o de estoques. 0 Governo desempenha atualmente um papel proeminente,tanto direto (fornecedore usuario de servicosde estocagem) c3ro - e ainda mais importante - atraves de suas politicas(fixa9go de pregosagricolas, taxas de juros,administragio de estoquesgovernamentais, tarifasde armazenamento,crddito subsidiado,inf'agio e intercAmbio),que moldam padroesde manutencio de estoques e investimentoen estocagem,bem como de competicioe eficiencia ios mercados. Muito ao contrariode sua -xi- inten;Io,a interven;Aodo Governo tem resultado, em 6ltimaanalise, no desestimuloI manuten;gode estoques e ao investimentoem instalacoesde armazenamentopelo setor privado, e na desestabilizacaodos mercados agricolas.

39. A interven;Aodo setor p6blico no subsetor do armazenamento continuaa ser difusa e mal coordenada,apesar de recentesmeng6es a politicasdestinadas a restringira reorientar a participacaodireta do Governo. Questloessencial 6 a do papel do setor piblicona prestagaode servicosdiretos de armazenamentopor intermedio da CIBRAZEM(Companhia Brasileirade Armazenamento)e das empresas estaduais. Essas companhias, alem de seu desempenho uniformementedeficiente, nao temr cumprido,em conjunto,o seu mandato original de prestacao de servigosde estocageme promo9loda concorrOnciae do investimentoonde estes nao existiam. Na verdade,as operaV6esdas empresas pclblicasde armazenamentoserviram para desincentivaro investimentodo setor privado em certasregioes. Ao mesmo tempo, as politicas de armazenamento do Governo concentraram-se excessivamenteem programasde investimentoem estocagem,deixando de levar em conta os efeitos de politicas comerciais, financeirase de fixa9lode pregos sobre os incentivos& manuten9&ode estoques(v. paragrafo14).

40. Uma das medidasmais importantesque o Governopode adotarpara estimular o desenvolvimentode um eficiente sistema de manuteng&ode estoquese instalacdesde armazenamentoconsiste em reduzira intervengaoe as atividadesdo setor piblico no armazenamentoe comercializacao.Deve o Governoconcentrar seus esforcos em escala muito mais estritanas fun96es que, tradicionalmente,os governos desempenhambem (essencialmentea regulamentagioe a supervisao)e reduzir sua participa9&odireta, com uma simultAneareorienta9lo de politicas de forma a melhoraros incentivosa participa9lodo setor privado. As recomendacuessao as seguintes: a) alienag&oas companhiasde estocagem do setor pdblicoe intensificacaodo uso de instalaV6esdo setor privado para programasde escolagemoficiais; b) a curto prazo,equiparagIo das tarifas de estocagemdo setor p(blicoas taxas do mercado (v. paragrafo23); c) melhoriados processosde concess&o de licencas,supervisao e inspe9&o de instalasaesde estocagem;d) melhoria da coordenaVloentre as politicas e as operag0es governamentaisde estocagem;e e) reduglodas intecvenV6esgovernamentais direta nos camposda comercializagaoe programasde retinglode estoques.

Politicade segurancaalimentar

41. 0 Governovem considerandoultimamente a forma;aode estoquesde gr&os basicos(arroz, trigo, feij&o, leite em p6 e carne),numa iniciativa para garantira estabilidadedo mercado intemno e atenderemergencias de escassez. Esses planossuscitam importantes questoes ligadas ao custo e ao impactode um programa dessa natureza, questoes que ainda nio foram bem debatidas no Brasil. Grandes est^oues reguladoress&o dispendiosos, dificeisde administrar,potencialmente desestabilizadores e relativamente ineficientespara fins de seguranca alimentar. 0 custo estimadode um estoquede segurangade 5 milhOesde t seria de US$765milhOes nos primeiros 0ois anos e, a seguir,de US$140milhOes; a titulode comparacao,a conta de importa9aode grlos em 1985 foi de US$823mn.hOes em 1986 e somenteUS$373 milhOesem 1987. -xii-

42. Uma politica de seguranca alimentar 6tima seria dependerdos mercadosinternacionais de graos pars casos imprevistosde deficitde alimentos,com o simultaneoestimulo I manuten,code estoquesadequados no sistemade "marketing"comercial. A chave para a estabilidadedos precose a segurangaalimentar esta no desenvolvimentode uma infra-estruturade comercAlalizacgomoderna, com a utilizacIo de todas as t6cnicasdisponiveis de coberturacambial, arbitragem fiscal e financiamentode estoques,para reduziros riscos inerentes I estocagem e comercializacaode produtos agricolas(v. paragrafo14). 0 desenvolvimentode mercadosde futurose a liberacaodo comercioexterno de produtosbasicos ofereceriam estabilidade de precosmaior do que a proporcionadaatualmente pelo programade precos minimos. Ambas as medidas ofereceriame incentivariamo setor privadoa manter estoques,assim reduzindodrasticamente a necessidadede dispendiosos programasde estoquesdo Governo. 0 mercadosde futurosmoderam os riscos de preco, estimulama manutengcode estoquesprivados e fornecem,melhor do que poderiao Governo, informacao sobre o que e esperadoem materiade tendanciasde precos,oferta e procura.

43. Se, por razoes politicas, um programa de pregos minimosfor consideradonecessario, cumpriria operar com o custo mais baixo possivele com o impactomenos negativosobre os mercadosinternos. Isso incluiriaa fixag&ode precos minimos a nivel inferior as tendancias de preco do mercado,a redur7aoao minimo das compras e da manutengiode estoquespelo Governoe a definigao, pars o mesmo, de clarasregras de intervengaono mercadoe venda de estoques. Hi, no momento, urgentenecessidade de melhoramentosno tocanteA acuisicao o manuseio do estogues-doGoverno, a saber: a) administra$aode estoquecentralizada num s6 6rgao e emigaode um regulamentopara aquisi9des e vendas; b) redug8o de niveisminimos para estoques, e uso de importag6es e exportagoespara os necessarios ajustamento;e c) esclarecimentodas responsabilidadesinstitucionais e melhoramentoda coordena9go.

ManutenCAo do estogues

44. Tanto da perspectivaindividual como nacional,o oferecimentode incentivosa manutengaode estoquese aos investimentosdo setorprivado em expansaoe melhoriade instala6oesde estocagem geral beneficios.Para o produtor,o processadorou o comercianteindividual, o beneficiomais 6bvio e a perspectivade maior rentabilidadedecorrente da melhoriade pregos (mas que tambem traz intrinseco o risco de queda de pregos). Os demais beneflcios podem-se resumir na forma de um rendimento conveniente, relacionadocom a uniformizag&oda oferta ou a estabilizaqgoda demandade transporte.De uma perspectivaecon8mica, os estoquesajudam a estabilizar mercadose reduzirdispendiosas intervengoes de merganciadurante crises de alimentos, a possibilitarmaior rentabilidadeliquida em divisas e a melhorara eficiOnciada comercializagio,assim aumentandoa competitividade e contribuindopara manter baixos os pregos internos dos alimentos. Instalagoesde estocagem adequadas e tecnicamenteatualizadas reduzem os custose aumentama eficiAnciada manutensAode estoquese das opera6desde comercializaVlo,principalmente na medidaem que o pais derivapara o tipo de estocagema granel. -xiii-

45. A inflagcao,os controles governamentaisde pre,ose a gestaodas divisassAo fatoresque, em conjunto, afetamos incentivosde manutengaode estoquesagricolas ou de investimentoem infra-estruturade armazenamento. No Brasil,tais incentivos t6m sofrido distor,oes causadasa) pelo custo extremamentealto do financiamentode inventarios,devido a infla9loe he elevadastaxas de juros reais; b) pelos crescentesriscos e incertezas geradospor volateis e imprevisiveisintervencOes do Governono mercado (tais como controles de pre,os e probi,ces de exportag&o);e c) pela utiliza9aode produtosbasicos como ativos financeirosI guisa de protegio contrariscos de vultosas desvaloriza0aesda moeda nacional. Qualquer estruturade incentivosdestinada a estimulara manuten,I.cde estoquesdeve, claramente,oferecer: i) oportunidadede financiamentode produtosbasicos a pre,osrazoaveis; ii) menor interven,aogovernamental e claras 'regrasde jogo' para mercadosde produtos basicos; e iii) compensa,iopara riscosde manutengaode estoques. A chave para proporcionartais incentivosesta no desenvolvimentode um mercado de futuros (v. paragrafo 15) e no financiamentocolateral de estoques(v. paragrafo21).

46. A disposig&odos participantesdo mercado no sentidode manter estoquesde produtosagricolas basicos e elementoessencial para a criagio de mercadosinternos estaveis. Os requisitosde estocagemagricola e os movimentosde pre,osdependem dos padroes sazonaise do volumedas safras. No Brasil,isso se complica com as varia,cesinter-regionais de padroes sazonaise entre o pais e o resto do mundo (especialmenteem relacioa soja). Maiorescorrentes de comercio reduziriam a necessidadede manter estoquese, ao mesmo tempo, aumentariama eficiOncia da produc&oe da comercializa9Aoagricola. Este 6 um dos grandesbeneficios da liberacaodo comerciode produtosbasicos no Brasil. 0 Governotem-se preocupado com a possibilidadede que a especula,aoexcessiva e o acdmulo de estoques privadoscontribuam para desestabilizaras mercadosinternos de alimentos. Contudo,a anAliseda experi§nciacom "arroxos' de mercadono Brasiltem reveladoque, em sua maioria, as descontinuidadesde ofertaforam causadas por a0oesmenos judiciosas do Governo (tais como controlesde precose proibig6es de intercambio),que impediram o setor privado de manter adequadosestoques reguladores.

Mercadosde futuros

47. Um mercadode futuroscom operag,o organizadae o nexo entre a manuten,aonio especulativade estoques e os objetivosde Qstabiliza,code pregos, estoques reguladorese comercializa,aoacima discutidos. Num sistemade comercializa,codesenvolvido, o risco 6 controladopor meio de uma transparenciamaior do mercadoe de um mercadode futurospara produtos bAsicos. 0 incremento da transpargnciae obtido mediante um sistema integradode mercados& vista e de bons sistemasde informa,aode mercado, que ajudamas participantesa decidir com base num s6lidoconhecimento da oferta,da procurae dos movimentos de pre9os. A utiliza9gode ur mercado de futurospermite que produtores, comerciantese processadoresmoderem os riscosde manutenc,ode estoques por meio de operacdesde cobertura. A existkiciade mercadosde futuros eficientese confiaveistamh4m favorpse a manuten,aode estoquesao transformara especulag,odos pregos lAe-,rodutos bAsicosem atividadeestabilizadora e agregadorade valor aos pregos. -xiv-

48. As opera;oesde coberturacambial gerariam grandes benficios para o Brasilem termos de maiores possibilidadesde empr6stimosexternos para manuten9&ode estoques,j4 que reduzem o risco de concess&ode creditopara estoques. Essas oportunidadesde prote;aotambem estimulam o investimento em instala;Oesde armazenamentoao reduzirem os riscos da atividade comercialou processadora. 0 desenvolvimentode mercadosde futurosem divisasliquidas tambem e importante por racionalizara manuteng8ode estoquesno Brasil, ao proporcionaroutras oportunidadesalem do uso de estoquesde produtosbasicos para compensarriscos de cambio.

49. No ambitodo Projeto de Reforma do Creditoe da Comercializagao (Empr. 2727-BR), grupos de trabalho do Governo formularam detalhadas recomendac6essobre as a96es necessariaspara desenvolvero comerciointerno de futurosno Brasil. Incluem-seentre as ag8es principais: i) a melhoria do acessoa mercadosexternos de futuros,possivelmente mediante a ofertade cuberturade risco de divisaspor agentesregistrados que operamno Brasil; ii) o desenvolvimentode mercados internos de futuros,o que dependertda reformade regulamentosfiscais que fazem discriminagaocontra os lucrosdo comerciointerno de futuros; iii) a introdugao de um mercadoliquido de friturosem divisas; iv) a melhoria das informa;Oesde mercadopor meic 4a integragaodas bolsasde graos, e incluindoredes nacionaisde informa;ao sobre pregose estoques; e v) a melhoria dos sistemasde informacoesde mercado (v. paragrafo27).

Financiamentode estoaues

50. A falta de financiamentode estoques de produtosbasicos limita grandamenteo desenvolvimentode um sistemacomercial eficiente e confiavel de manutenglode estoquesno Brasil. 0s problemasprincipais s&o o alto custo real dos emprestlmosa curto prazo,em combinaglocom as incertezasde disponibilidadede financiamento.Isso tem resultado,para o produtor,em menor flexibilidadede decisao quanto a comercializa;ao,assim reduzindoa eficignciade mercadoe a renda agricola,bem como em altos custosinternos de comercializagao,afetando a capacidadede concorr§nciainternacional.

51. Os programasoficiais de financiamentominimo (EGF - Empr4stimosdo GovernoFederal, e AGF - Aquisicoes do GovernoFederal) que incluio EGF e AGP, representamimportante fonte de credito para estoques,que somou mais de US$2,3bilh&o em 1986-87. Mas os importantescustos dos subsidios proporcionadospor esses programslimitam o montantede recursosque pode o Governoalocar anualmente e acentuamsua variabilidade,por estaremsujeitos a decisOesfiscais de curto prazo. As justificativaspara o envolvimentodo Governono financiamentode estoques e apoio de pre,osincluem o apoio a pequenosprodutores e a estabilizag&odos preoos. Contudo,os fundosdo EGF tam-sedestinado principalmenteaos grandes produtores nas regioesmail desenvolvidasdo pals, especialmenteos de soja. Alem disso,a existencia do programuEGF tem prejudicadoo desenvolvimentode outrasoportunidades de financiamentode estoques que contribuiriam em maior escala para a estabiliza9&odo mercado. Como o EGP e AGF estAo ligados(fazendeiros participamdo EGF ou ambos)AGF teve um impactopequeno nos fazendeiros.A disponibilidadegovernamental de estoques do AGF poderaodestabilizar os pre0os. A substituci8odesses programas ou manuteng8ode estoquesindica uma comercializagaoestabilizada. 52. No Ambitodo Empr. 2727-BR,um grupo de estudodo Governoexaminou problemasligados ao financiamentode estoque e precosminimos, formulou detalhadasrecomendac6es para o desenvolvimentodo financiamentode estoques no Brasil. 0 objetivo6ltimo 4 substituiro programaEGF por um sistemade financiamentode estoquescomerciais, ou seja, certificadosde armazenamento e aceitesbancarios, amplamente utilizados em todo o mundo. Os certificados garantem a existgndia de produtos agricolas classificadosem armazens alfandegarios,devidamente segurados e geralmentecom coberturados mercados de futuros. A chave para o seu desenvolvimentoe a confiansados compradorese f:tnanciadoresem termosde qualidadee quantidade.Os aceites bancarios sao, em essOncia, penhores desses produtos bSsicos assim armazenados.Alem de altamente atrativos para os banqueiros(ja que se tratamde valoresnegociados), representam uma fonte de financiamentobarato para comerciantese produtores.

53. Para a implantacaode um sistema dessa naturezano Brasilseria necessario tomar as seguintes providOnciasprincipais: i) adotaros certificadosde armazenamentocomo instrumentosfinanceiros e criar os necessariosregulamentos (que deveriamser compativeiscom os que regem os mercadosinternacionais de aceites a fim de estimularnovos emprestimos externos nessa area) e os meios de apoio institucional(centros de inter_ambiode informacio);ii) paralelamente,desenvolver a supervisaoe o controleindispensaveis para a confianqa do mercadonesses certificados (v. par6grafo9); e iii) desenvolvermercados internosde futurospara gerir os riscosinerentes ao financiamentode estoques(v. parigrafo17).

54. A respeitodo tabelamentode pregos minimos,recomendamos: a) a politicade estabilizacaode preoo deve focalizar normalizaro mercado atraves de incentivos que garantam 0 mercado de estoques, criar oportunidadesque reduzamo risco e liberalizara politicade mercado;b) caso um determinadoprograma de apoio aos pregos seja considerado particularmentenecessario, esse devera funcionar como um programade proteoio,com os precos estabelecidosabaixo dos pregosde mercadce com regrasexplicitas sobre aquisigaoe venda de estoques.

Tarifasde estocaaem

55. Tarifas compensadoraspara as fontes de estocagemrepresentam importanteincentivo para promovero investimentoprivado em instalag6esde armazenamentoe para limitaros prejuizosde empresasp(blicas do subsetor. Ate aqui, o Governo tem regulado sem maior rigor as tarifasdo setor privado. A politicatarifaria tem variadonos Oltimosanos: congelamentos de pregosde 1986 e 1987 introduziramcontroles nacionais,ao passo que diversos grupos de interesse advogaram tarifas de armazenamento panterritoriais e maior regulamentacsofederal. Has, num pals com as dimensOese a diversidade do Brasil, as tarifas panterritoriais acentuariam as distorcoes do mercado e solapariam ainda mais a lucratividad6da prestasaode servigos de estocagem. Atualmente as tarifasde estocagem encontram-sesem controle. No setor pUblico, as tarifasde estocagemnao acompanharama inflagloe, o que e mais importante,nao cobremos custosde capitale depreciagco,que slo os componentesde custo mais importantesdo subsetor. Tarifas artificialmente baixas no setor p(blico e nas cooperativascomprovarm ser um desincentivopara o investimentoprivado, resultandoao mesmo tempo em elevados subsidios dos governosfederal e estaduais. -xvi-

56. 0s elementos recomendadospara uma politia ' tarifas de armazenamentoslo os seguintess i) permitir livre fixatao de tarifas por empresasde estocagem,tarifas nacionais n&o devem ser fixadas;ii) aumentar as tarifasdo setor p6blicopara cobrircustos, incluindo deprecia9ao (e, a longo prazo,alienar as emrepsasdo setor p6blico (v. paragrafo9); e iii) aumentara qualidadedos servicos de armazenamentopor meio da melhoriada supervisaoe das praticasde concessao de licengas(v. paragrafo8), a fim de dar atendimentoa preccupa9oescom manipulackode pre,ose concorrencia.

QuestOesrelativas a comercializaclo

57. 0 desenvolvimentode um transporte de baixo custo e necessidade prementepara o setor agricola do Brasil. A necessidademais urgente consisteem reduziros custos do transporte de graoe a granel,a fim de manter a capacidadede concorr4nciado Brasilnos mercadosinternacionais e melhorara eficienciada comercializag8ointerna. 0 Banco esta preparando um estudosobre os problemas de transporte nos estados do Cerrado. A prioridadepara melhorara infra-estruturadeveria caber as Areas de maior produqaodo pals, e nlo a expansaopara novos territ6rios.

58. 0 desenvolvimentodo financiamentode estoques comerciaise de modernossistemas de comercializag&odependen da melhoriada classificacloe cualificacao,e das informacoesde mercado. A falta de um sistemafidedigno e facilmentedisponivel de classificacaode produtos,baseado em padroes nacionais, erode a confianga nos certificadosde armazenamentoe nas transag6esde produtosprimarios. As seguintesmedidas sao recomendadas: i) moderniza,aoe simplificagaodos padroes e graus atuais;e ii) concessao de licencapara que os dep6sitos prestemservicos de classifica,ao;e iii) encorajaro uso de companhiaprivadas.

59. Os sistemasde comercializagaodo Brasiltambem s&o limitadospela falta de adequadainformagao de mercado, o que reduz a transparenciado mercadoe afeta o processodecis6rio. 0s problemasincluem a multip'icidade de insltituicoesque reonem dados; a inconsistenciae a incorreoiodos mesmos;e a deficientedifusAo de informa o. Quantoa isso, um grupo de trabalhodo Governorecomendou: i) a indicagc&od'. IBGE para coordenara coletade estatisticasagricolas; ii) a melhoria de divulgacaode dados, incluindocanais e epocas regulares para a publicagAo dos mesmos; iii) maior atencaoA metodologiade coleta e analisede dados;e iv) a melhoria da formagaode quadrosde pessoal, do treinamentoe do apoio em materiade coletade dados.

Necessidadesde investimento

60. lndicam as projeooes sobre necessidadesde estocagem que o incrementodos investimentosem instalacoesde armazenamentoserao criticas durantea pr6ximad4cada: cerca de US$2-3bilhOes. Mas a mera provis&ode recursospara investimentoem armazenamenton8o resolverloas problemasde distorcaode manutencaode estoques e de desestabilizag&odo mercado. A necessidademais urgenteconsiste em abordaras desincentivos& manuten9co de estoquese ao investimento,reduzindo em particularas intervenc6esdo Governo e proporcionandooportunidades de financiamentode estoquese redu9gode riscos (pormeio de mercadosde futuros). Uma vez atacadosesses problemas, um programa de investimentosem armazenamento,ademais de -xvii- apropriado, geraria importantes beneficios para os sistemas de comercializaciodo Brasil. Recomenda-sea provisaode recursosadicionais para investimentoem armazenamento,por meio de uma linha geral de credito (tal como o PRONOGRI,apoiado pelo Emprestimo 2268),em vez de vincularo creditotSo somente& estocagem,para aumentara flexibilidadee o uso 6timo do mesmo. Isso seria coerente com as recomendac6esgerais do Banco em materiade creditoagricola. BRAZIL

AGRICULTURALSTORAGE AND MARKETINGREVIEW

CHAPTERI. BR21IS AGICUL AND

A. Introduction 1.01 Record grain harvests in 1987 coupled with rapidlyexpantding agriculturalproduction in the frontier states contributedto yet another storagecrisis in Brazil. The pattern was not newt over the past two decades, there have been repeated critical shortages of agricultural storage. Usually triggered by bumper harvests, t'aeseshortages reflect ongoingproblems in stimulatingsufficient investment in storagefacilities and, more importantly,in encouragingproducer and commercialstockholding. Contributingfactors include Brazil's dynamic agriculturalgrowth in the frontierareas and shiftsto new crops (soybeans,maize), constrained credit for agriculturalinvestment, Government pricingand marketingpolicies, and high inflation. In responseto worseningshortages and low privatestocks, the Government of Brazil is seeking to increase public and private investmentin storage,while expanding stockfinancing opportunities.The Governmenthas requestedBank supportin this area. A missionto reviewthe storagesubsector visited Brazil in March/April 1987, and this report summarizestheir findings.1

1.02 The objectiveof Shis report is to provide an overviewof the storagesubsector and to identify key constraints to stockholdingand to storageinvestment, as a contributionto Governmentpolicies and programsin this area and as a basis for possible Bank support. A major point of departurefor this reviewis that effectiveagricultural storage policy must provideboth incentives to hold stocks as well as incentivesto build warehouses. From a sectoral perspective,the willingness of market participantsto hold stocksis a crucialelement in creatingstable domestic markets. Indeed, many of the benefits assignedto agriculturalstorage construction(such as added value of inventoriesand market stabilization) actuallycome from holding stocks, rather than buildingstores. Moreover the structureof storage incentives affects market competitionswithout adequate incentives,the private sector will not invest in storage facilitiesand the Government,by default, will play an increasingrole in providingstorage services and in market stabilization.Thus, this study emphasizesthe financial and economic incentives affecting pattemnsof stockholdingand storageinvestment as well as examiningthe physicalneeds for storage.

1.03 The reportconcentrates on basic foodgrains(maize, rice, beans, wheat and soybeans) because these figure importantlyin both the agriculturaleconomy and in the recent storage crisis. Brazil'ssize and the complexityof the storage subsectoralone have necessarilylimited this reviewto grains. Other major commodities,notably coffee, sugar, cotton and orangejuice, have in general fewer storage problems,due to better

1/ Missionmembers were Messrs./Mmes.P. Cox, C. Lewis,D. Mitcbnik,A. Tobelem (Bank)and R. Lacroix(Consultant). -2-

developedstorage networks and simpler storagetechnology (storage in bags ratherthan in bulk, except for orange juice). Refrigeratedstorage is increasingin Brazil,but still remainsa smallpart of totalstorage needs.

1.04 The reportbegins with backgroundon Brazil'sagricultural sector, notablygrowth trends, the structure of production,and a summaryof marketingsystems for major crops. Understandingthese factors is important to an appreciationof storageconstraints and problems. The secondchapter providesan overviewof the storage subsector and projectsstorage needs over the next five years.Chapter III reviewsthe role of the publicsector in storageand officialstorage policies. ChapterIV examinesfinancial and economicissues, including the economics of stockholdingand financial incentivesfor storageinvestment. Chapter V discussesrelated marketing issues (transportation,grading and classification,and market information systems).

B. Brazil'sAgricultural Sector AgriculturalGrowth and Performance

1.05 Agriculturein Brazil accounts for about 122 of GDP, 302 of employmentand 352 of exports. During the 1970s,sectoral GDP grew at an annualaverage rate of 6Z, fueled primarily by the developmentof export crops (soybeans,citrus, coffee, cocoa and tobacco)and, in the latterpart of the 1970s,sugarcane for the alcoholprogram. Totalplanted area grew by 3.3Z per year between 1970 and 1980, and agriculturalexports doubled between1975 and 1980 (fromUS$4 billion to US$8 billion). Productionwas particularlydynamic in the expanding frontier statesof the Center-West (Goi6s,Mato Grosso,Mato Grossodo Sul and parts of Minas Gerais--seeMap 20444)but also grew steadilyin the traditionalagricultural states of the South.2 The rapidgrowth relied heavily on cheapmoney (madeeven cheaperto Brazilianagriculture by heavy Government subsidies) and buoyantworld commodityprices.

1.06 In the early 19809, agricultureentered a periodof decline, causedin part by Brazil's economic difficultiesand subsequentsharp reductionin the supply of rural credit, and in part by fallingworld commodityprices. Between1980 and 1986,agricultural exports leveled off (at around US$8 billion), food production declined, and food imports increased(to aroundUS$2 billionin 1986). Plantedarea declinedby 1.72 per year, the supply of agriculturalcredit (bothofficial and unofficial)

2/ The followingregional breakdown of statesand federalterritories is used throughoutthis report: Norths Rond8nia,Acre, Amazonas,Roraima, Para and Amap4; Northeast: Maranhao,Piaui, Ceara, Rio Grande do Norte,Paraiba, Pernambuco,Alagoas, Sergipe and Bahia; Southeast: Minas Gerais, Espirito Santo, Rio de Janeiroand Sao Paulo; South: Parant,Santa Catarina, and Rio Grandedo Sul; Center-West:Mato Grosso,Mato Grosso do Sul, Goiasand the Federal District. See Map 20444 for location. -3- was nearlyhalved (fromUS$14 billion equivalentin 1975 to US$8.5billion equivalentin 1985),and the share of investment creditin total rural credit fell from 311 to 13Z. Food crop productionsuffereds in 1970 the outputof the six major food crops (maize,wheat, potatoes, rice, cassava and beans)was 57 millionmt; in 1985, it was 63 millionmt, an increaseof only 11? in fifteenyears. Duringthe same periodthe populationincreased by 452. There were modest recoveries in 1985, and in 1987, and 1988, bumper grainharvests, stimulatedin part by risingdomestic and world agriculturalprices and (in 1986) real incomes.

Structureof Production

1.07 The structureof agriculturalproduction plays an importantrole in the developmentof marketingand storagesystems, particularly as Brazil has a highly diverse agriculturalsector. Table 1.1 showsthe changing structureof production over the last twenty years. Of note is the relativedecline of the importance of domesticfood crops,particularly root crops,beans and rice, and the increasein importanceof exportand industrialcrops. Soybeansin particular have shown a dramaticincrease, and sugarcanea lesserone (although much of the sugarcaneproduction is for the domesticalcohol program).

1.08 Grain productionis heavilyconcentrated in the South and Center- West (Table1.2). Together,these states account for almost all wheat and soylzeanproduction and over half of maize and rice production. The Southeastis a major producer of export and industrialcrops (coffee, sugarcane,and cotton). The Northeast states produceboth foodcrops, includingrice, maize, manioc and beans,and the traditionalexport crops: sugarcane,cotton and cocoa.

1.09 The predominantcharacteristic of Brazil'sagricultural sector is its dynamism. Endowedwith one of the largestland frontiersin the world, Brazilhas traditionallyincreased productionmainly throughexpansion ratherthan throughintensification. Crop mixes have tendedto shift among regions:for example,the centerof coffeeproduction has shiftedfrom Sao Paulo to Parana,then back to the Southeastregion and into Minas Gerais. The dynamismof the sector is also a problem, as rapid expansionand productionshifts demand equally rapid developmentand shiftsin storage and marketing infrastructure. As grain production replaces coffee production,new investmentsin bulk handlingfacilities must be made.

1.10 Resource endowments combined with historical developmenthave created divergent regional production patterns. The Northeast, traditionallyan area of large landholdingsjuxtaposed with small farmers (some of whom are tenants or renters), has a belt of productive agriculturalland (the zona da mata) along the coast,in placesonly 50-80 km wide. In the relativelydry interior(the sert&o),agricultural productionis subjectto climatic vagaries, and droughtsare a recurring problem. Productionof foodcropsin the Northeastis characterizedby many scattered small farmers, producing maize, rice, manioc and beans. Marketablesurpluses tend to be limited. In addition,the regionis a net importerof foodgrains,chiefly maize and rice. The Northeasthas long producedexport crops (cocoa,coffee, sugarcane and cotton);these commoditiesare usuallystored in bags and storageis not a major problem. -4-

9 R A Z I L AgriculturalStorage and MarketingReview TabO 1.1 Structuroot Cro PC00Vctlop19l - 18 (a of TotalNational) Percentof TotalValue of PrincipalCrops Category 1966 1978 1977 19*6

CEREALS ao.0 25.6 20.4 88.1 Wheat 2.5 3.5 2.9 8.7 RICe (Paddy) 14.2 10.2 7.5 11.1 Mal" 18.8 11.9 19.9 18.8 ROOT CROPS 15.6 12.7 18.6 10.8 Manloc 7.7 8.0 10.7 7.0 Potatoes 4.9 8.3 2.4 8.0 Peanuts 88.0 1.3 0.6 0.8 BLACKBEANS 9.5 10.0 6.6 6.8 FRUITSAND VEGETABLES 8.7 7.8 8.8 12.9 Tomatoem 1.7 1.4 1.7 2.4 Orange 2.0 3.0 8.t 6.2 Other 5.0 3.5 3.5 5.8 Subtotal,Domietic Food crop. 68.8 56.2 49.8 62.7 EXPORTAND INDUSTRIAL CROPS 86.2 A8.8 50.7 87.J Soybeans 1.4 12.9 17.8 18.0 Cocao 1.6 2.8 4.2 8.4 Coffee 10.6 9.8 18.1 6.5 Tobacco 1.6 1.4 1.6 n.d Sugaercne 10.8 7.4 8.6 18.0 Cotton 8.4 9.0 6.8 t.8 Other 1.9 1.4 0.7 1.8 Total 100.0 100.0 100.0 100.0 Source:IBE BRAZIL AGRICULTURALSTORAGE AND MARKETINGREVIEW

Table 1.2 RegionalImPortance of Crop Production.1986

RegionalProduction as Percentof Total Production

ne------n--- __------_____ CROP NORTH NORTHEAST SOUTHEAST SOUTH CENTER-WEST TOTAL(a) ------e------______FOODCROPS Wheat 0.0 0.0 6.9 66.9 8.2 160.0 Maize 2.6 9.8 82.6 40.0 18.2 160.6 Rice (paddy) 4.9 20.0 18.7 88.4 23.4 1l0.0 Manloc 15.7 62.2 10.8 17.7 4.1 160.6 BlackBeans 0.0 41.8 28.2 19.8 3.1 166.6 EXPORT& INDUSTRIALCROPS Soybeans 0.0 1.6 12.8 47.7 88.2 10W.O Cocoa 10.6 86.2 2.8 0.0 0.8 16.0 Coffee 0.0 2.8 72.7 21.0 0.0 16.0 Sugarcane 0.1 27.8 81.4 6.8 6.6 166.6 Cotton 0.1 18.2 40.7 86.9 6.6 1W.0

Sourcet ISGE

(a) Rowe may not totaldue to rounding. -6-

1.11 The North is the most recently settledarea of Brazil. Since the 19709,the Governmenthas promoted small farmerland settlementprograms, especiallyin the statesof Acre and RondOnia. The North remainsa minor agriculturalproducer, chiefly producing foodcrops and cocoa. Storageand marketingproblems in this regioncenter around the lack of infrastructure, includingtransport, and long distances to domesticconsumption centers (stillclustered on the coast)or exportports.

1-12 The Southeast and the South are Brazil's main centers of commercialagricultural production. Together, these seven statesaccount for 90? of national wheat production, 65X of maize, soybeans,sugar and cotton,85? of coffeeand 512 of rice. Productionis markedby a diversity of farm sizes,from huge plantationsto small commercialfarms. The region has fertilesoils (althoughrecently soil conservationhas becomea problem in the most heavily farmed areas), temperate climate,and even rainfall patterns. Productionincreases in recent years have dependedlargely on the expansionof cultivated area, although there are recentindications that productionis intensifyingand crop yieldsimproving. Marketingand storageinfrastructure tends to be good. Production is usuallywell integratedinto processing(soybean crushing, rice mills, flourmills, feed companies)and export networks, and lies within reasonabledistance of ports and consumptioncenters. The key need for the southernregions of the countryis increased bulk handling facilities for grains,and more sophisticatedmarketing systems.

1.13 Much of the easily cultivable frontier land lies in the Center- West region. This regionis marked by the cerrados,vast prairieswhich, until a decadeago, were generally believedto be suitableonly for cattle production.Advances in researchand pressuresfor expansionhelped change this view, and the Center-Westis today one of the fastestgrowing agriculturalregions in the country, attractingimmigrants mainly from the South. The regionis a major producerof uplandrice (usuallyplanted as a first crop in newly opened areas), maize, soybeansand wheat,mainly on large farms (200 ha or over). Dynamicgrowth, coupled with rapid shifts among croppingpatterns (the relativedecline of rice productionand growth of maize and soybeansplus shifts in and out of livestockproduction) have put severepressure on limited regional infrastructure. The paucityof warehousesand marketingnetworks, coupled with high transportcosts (due to heavy dependenceon truck transport) and long distancesfrom ports and consumptioncenters, are the major factorsaffecting regional storage and marketing.

C. Grain MarketingSystems

1.14 Marketingsystems for major grains in Brazildiffer both by crop and, to some extent,by region, affected by the structureof production. The Governmentpurchases between 1 and 15? of the grain crop and is the largestsingle crop buyer. Government'sminimum price policyand crop marketingcredit (EGF and AGF programs; see Chapter IV) also have had a large impacton stockholdingpatterns and storageinvestment. 1.15 Wheat marketing is a monopolyof the Governmentand is handledby CTRIN (thewheat marketingagency in the Bank of Brazil). Wheat policy stems from several national goals, including self-sufficiencyin wheat supply,control of inflation,and control of urban food costs. Wheat is grown in the off-seasonfrom soybeans, which allowsmore efficientuse of this infrastructure.Government control of marketingand pricingprovides littleincentive to producersto strce wheat. Producerssell to CTRIN at the fixed Governmentprice, and CTRIN arranges for storagein state or federal warehouses and in cooperatives(CTRIN does not own its own infrastructure).The wheat is then sold to millerswho market flour at the officialprice. All wheat is handled and storedin bulk in Brazil. CTRIN also importswheat, which, until 1988, made up a substantialpercentage of domesticconsumption. In the past, the wheat subsidy has been sizeable, amountingto about US$1.5 billion in 1986, or nearly 1U of GDP. The Governmenthas recentlydrastically reduced the wheat subsidy,increasing the consumerprice and reducing the producer price to about US$180/mt (whichremains above the averageimport price in 1987 of US$95imt,and the estimatedimport parity of US$130 - 140/mt). 1.16 Maize is handledthrough a numberof marketingchannels depending on regionand farm size. Brazil is largelyself-sufficient in maize, althoughdroughts in producing regions can result in imports. Maize is handled in both bag and bulk. In the commercial,high productionregions of the South and Center-West,bulk handling predominates,despite a shortageof bulk storagefacilities. Maize is grown predominantlyby small farmers:almost 702 of total outputis producedon holdingsof less than 50 ha. This has contributedto the importanceof two types of maize marketing channelsstruck tradersand cooperatives.

1.17 In the Northeast, where maize production is concentratedamong small producers,itinerant truck traders play the major role in product marketing,buying from small farmers, assemblinglarger lots, and selling these to other middlemenor wholesalers. This flexibleand highlymobile marketingnetwork has oriented storage demand towardassembly stores in marketingcenters, rather than towardcollection stores in rural areas.

1.18 In the Southeastand South, cooperatives,grain tradere,and feed processorsplay the predominantrole. Most of Brazil'smaize is used as animalfeed, primarilyby pig and poultry producers. Feed companiesbuy maize from farmers or cooperatives,although their storagecapacity is limited. Cooperativesplay a major role in maize collectionand storagein the South,especially as on-farm storage is very limited(para. 2.07). Maize producersdepend heavily on cooperativeor publicwarehouse storage facilities,as maize requires drying and cleaning before storage,and becausethere is little storage within the marketingsystem itself (in contrastto soybeans,which are quicklycrushed or exported,or wheat which is handledby the Government). A proportion of maize is sold to the Governmentunder the AGF program (para. 4.29). In the Center-West,the Governmentplays a more importantrole in maize purchasing,due to the lack of marketinginfrastructure and tradersoperating in this region.

1.19 Soybeansare mainlymarketed throughthe cooperativesor directly to thv processors,although the Government also buys a proportionof the soybeancrop under the AGS program. Soybeansare alwayshandled in bulk in Brazil,and their rapid expansion has contributedto storageconstraints. -8-

Soybeansare both crushedfor domestic consumptionand exportof oil and meat, and exportedas whole beans. The verticalintegration of the soya industryand the abilityto exportbeans as well as soy productstakes some pressureoff domestic stcrage capacity, particularlysince the Brazilian soybeancrop is harvestedIn the off-seasonfrom US production.The soybean crushersown considerablestorage capacity, and soybeansare also storedby cooperatives.Since soybeansare often producedin rotationwith wheat in the South, storagefacilities are complementary,although there usuallyis a push to evacuateGovernment-owned wheat from cooperativewarehouses prior to the soybeanharvest.

1.20 Rice is widely grown in Brazil, under both rainfedand, in the South,irrigated conditions. High internal rice priceshave encouraged self-sufficiencyexcept in years with unfavorableweather. Rice production in the South is concentratedin the state of Rio Grandedo Sul, where cooperativesmarket and mill nearlyall the rice crop. In the Center-West and Northeast,rainfed rice is marketed mainly throughtraders, although increasingly,as cooperativesare established,rice is handledthrough these channels as well. Developmentof marketing infrastructurefor rainfedrice has been hamperedby variabilityof production(due to weather and shiftsto other crops), concentrationof small farmers,and limited transport. Paddy is handledin both bag and bulk, althoughmilled rice is alwayshandled and storedin bags in Brazil.

1.21 Brazilis one of the world's largestproducers and consumersof ediblebeans. Beans are typicallya small farm crop,and the Northeastis the largestregional producer, exporting beans to other regionsof the country. Unlike other grain crops in Brazil, which are uniformin standard,beans pose specialproblems for marketingand storagebecause of variationsin color,size and quality, and thus must be handledand stored in bags. Becauseproduction is limited to small lots,beans are usually handledby tradersor by cooperatives,although the Governmentbuys beans under the minimumprice program.

CHAPTERII. STORAGEINFRASTRUCTURE

Stora,e Capacity and Location

2.01 Brazil suffers from a shortage of storage facilities. The shortageshave been particularlycritical in this bumpercrop year, but shortageshave existedfor the last two decadesat least,and are projected to increasein the future (para. 2.05). Total usablestorage capacity for agriculturalcommodities is currently estimated at 60 millionmt (Table 2.1), according to CIBRAZEM (Federal Storage Company) figures.3 In contrast,total agriculturalproduction requiring storage (mainly grains and

3/ CIBRAZEMis presently updating these figuresthrough a comprehensive storagecensus. Extrapolationof preliminary resultsindicate that currentcapacity may be closerto 70 millionmt. See Annex ITT. BRUZIL 4griculturalStorage and flarketing Reviev

StorageCapacity aidOunership, 1985/86 (at)

I. STOBAGECAPACITY BYTYPE

BAG PIBCENT BULI P18ClNt 116IOl STORIGt 0 TOTiL STORAGI O TOTAL TOTAL

lorth 397,581 85.7% 66,560 14.3% 4B4,141 100%

lortheast 2,365,037 89.8% 268,664 10.2% 2,633,101 100%

Southeast 10,686,150 66.0% 5,039,904 32.0% 15,726,054 100%

South 12,260,233 38.1% 19,911,114 61.9% 32,171,347 100%

centerVest 5.323,483 58.2% 3,819,354 41.8% 9,142,837 100%

TOTAL 31,032,484 51.6% 29,105,596 48.4% 60,138,C80 100%

II.STOBAii ONINRSUIP

PiRCIUT Pl CENT RE6IOl PRIVAT 0ofTOTAL PUBLIC OfTOTAL TOTAL

North 183,910 39.6% 280,231 60.4% 464,141 100%

hNrtheast 1,321,398 50.2% 1,312,303 49.8% 2,633,101 100%

Southeast 8,196,172 56.1% 6,889,882 43.9% 15,686,054 100%

South 16,204,502 50.8% 15,697,831 49.2% 31,902,339 100%

CenterVest 3,264,831 35.7% 5,877,916 64.3% 9,142,741 100%

OTAL 29,770,813 49.8% 30,058,169 50.2% 59,828,982 100%

Source:CIBBAUU -10- industrialcrops) was 76 million mt in 1985, of which 56 millionmt were grains. In 1986/87,grain production alone reacheda record65 millionmt, strainingstorage facilities.

2.02 Evaluating the adequacy of storage capacity in relation to productionis complexand there is no magic number relatingproduction to needs. Factors such as cropping patterns, commoditycharacteristics, desiredstock levelsand turnover, transport costs,existing capacity and marketingchains are important determinantsof storageneeds and location. One very roughmeasure is the ratio of capacityto production. In Brazil, this ratio is 0.8, even if marginally acceptablestorage facilities are included. In comparison,in the United States, the ratio is 1.5, and the FAO recommendsa ratioof at least 1.25. The Governmentwishes to increase the ratio to 1.2, the minimum it considersnecessary. This reportassumes that a ratioof 1 is the minimumacceptable ratio, acknowledging that this measureis imperfect. Based on this ratio,Brazil had a net storagedeficit of some 10 millionmt (Table2.2).

2.03 Aggregatedeficit figures mask importantshortages of storagetypes (bag or bulk) and imbalancesamong regions. Brazil'scurrent shortage of bulk handlingfacilities is about 26 millionmt; every regionis in deficit, but the South and Center-Westparticularly so. Comparisonof bag facilities showsa marked regional imbalance,with an aggregateexcess supply of 15 millionmt, mainly in the Southand Southeast.This excessis the resultof shiftsfrom traditionalexport crops (coffee,sugar, and cotton)requiring bag storage,to grainsrequiring bulk storage.The South and Southeastare comparativelybetter endowed with storage infrastructureoveralls the two regionstogether account for 702 of agriculturalproduction and have 80? of storage capacity. In comparison,the Northeast accounts for 14? of production,but has only 4? of capacity. Althoughthe southernregions have excessbag capacity,they sorely need to expandbulk handlingfacilities. The conditionof many bag stores,combined with technicalproblems, prevents widescaleconversion from bag to bulk.

2.04 Brazil'scurrent marketing policies and trade regimealso affect storageneeds and location. Except for soybeans,Brazil's trade policies for most grains are restrictive, leading to higher stocking needs domesticallythan would be the case if consumers and producershad more accessto world markets. It is difficult to assessthe full impactof changesin the trade regimeon storagecapacity, however, because it is also clear that Brazil'sstorage infrastructure in relationto productionis far below what existsin more developed countries (para.2.02). Freer trade would shiftpatterns of stockholding; more infrastructuremay be required at the ports, and the Governmentmight own fewer stocks. At the same time, encouragementof private sector stockholding could spur additional investmentin farm-leveland localgrain silos.

Proiectionof StorageNeeds

2.05 Projectionsof storage needs over the next five years emphasize that without significantadditional investment in storageinfrastructure, Brazil'sstorage crises will continueand worsen.By 1992,Brazil could have a storagedeficit of 40 million mt bulk storage and 10 millionmt bag -1U-

OgrleutluiralStorage aolIa4t:tsq lieo

VAU~~~~~~~~~~~~~~~~':

0.1 101.120 30.( 1.1441 441.340 130.634 tlodooss33223S11 320.6011 WH.O4 j 11.2 Sure 53,162 312,1621 ~~~~~~~ ~~~~~~~42.31621.61? $1,44 161.631S106,1 5tOl.561 61.54I 13.04611GI II9L6 31,103 113 3.312 16.301 13.109 26.264 1o.91a loreia 22,012 112.012) 8.642123,1t 234.323 2.20? 14.040 12,613 6.431 104.101 1IU.6.0 Ipar 1it 131,341)U10.192 12it5s.4U6 261,111 (200,111t 302.015 t06.580 8set t25.6l3 393.31 32.2141 1.346.131 45919.1 S14tpt..1 120.n6 " (''4.3106

lJ.t $ 111.006 4U0.2 31 t1.111 111.03I 0.254 1 t46.1161221,116 319.1s5 lamb..o 2U041 1113321 030.131 1.04 *130,0il 54IS.SI 154,S19t 215.31I 33,1090 211.141 tlirti 394.631 3l1,122 (43.5111 613,004 l218.3t5 42,069 1231,4113 111.263 (133.U31 tns 295.26i 162l.l i133.N441 354.12t oas 6.ion 1N.t61 94 (N150.6111 112§1l."IOUOeU.241{Zn411 tII* Il.t" 9.3r unl 312 443.330 112.010 (210.434) 631.1841331 hsralbs 300,664 1,341 dll.33111 1105,911 2,190.404 438,314 *111.11 1,481.322 1251,35 0156.0111 1.13.04 313.081 Peruambuco 614194S 401.209 1121.6601 ,043I.631 43.482 I 004?11 A14. 011.683 2t.113 (114,31St 34.622 121l.1l: 1,14 1116.031 162.621 21.366 11S,2531 306,1S1 steip 123.131 1t.123,634)U,4S.131 490.131 1.9150241 098,031 31.41 (046.4083 1.S191640 451.026 labi1 z,3 61.331,101.'1 3.3,1,2,3l 311 2.I33.3115 Stot,al 4.13.1Snt 20,0l38 414411,122) S1,20,511

1.112.550 610.313 2.$1t.11 1,l.693 0 60.143I00.143 616.111 90.4U1 (334.112) opitito Sato 469.S25 .154 173,11 118.001 443.031 liot6 tloa. J320.412 S4,261 (214,2211 S.212.N1. 1311,30 (1.614) 6.011311 r31.246 31.UO.5131 6.134.122 112.2t5 l deeo Iro 112.110 1,650,623 5,2U6.331 1.21S1I22 11111013 4,4.113 4.625,3110 4,014,410 (310,911) 2.l31,42 113.4 Saotolo 1,5S1,163 10.646.010 1.01.011 14,014.12 . ,1 sutotl 1S,326S06 S.39.104 3206,6423

11.101.2ll 16.14.181 1361.32$1 l.14.211 34.31.813 2.111.400 6.40.143 3.126.334 *aau 33,325.311i 4,005.133 2,0n1,13 iI.115.1131 3.315,111 1,335,310 11.930,0411 610.619 111.M9 2N,10 Wu Cataiut 1.3JS.026 1,0143J13 14.151.941 14,521.641 .10 doSol 13,631.414 1,3011 13,41,613) 111,43 3.1.6161 Ito Oradt 3.111,4 1116,10.233 13,124.111 34.061363 3.111.341 Subtotal 330.233.48211.U6 109 (14,611,3131

t nH5T 1I31.139. I,I0.MlS 3.422.SU6 2.li1,SS1 :1,IU613 Ibto growo 3,111,131 040,013 12.231.11 2SI.Il1 2.335.I02 412.221I 1.401.103 11.I10,231) 352,133 330.140 113.016 2.14U.013 hI Growsdo Sol 2.55.343 2161.124 2,166.113 3.113.121 4.381.313 021.604 3.tS1,318 1.1413.1 12.13$.311 201,11 I6.St2 Clst 1.631 I4,2 63.314 101.334 325,116 federlDistrict 131.61 60154 IU1U42I 601,13 S1323512 4,16.U421 1.033.14 1142.811 3S11.21 Subtotl 9142.S151 3.11S.264 (I,6i6,6611 l1i.13,119 191,1011 31.2341291 IS,25.211 10,202,112.60.033,313 m010uIltIL 50,413.0 24.,1.615 321,634,210) 18.114.116Si3s.207,3611 ,fotulbliclt (26.492.110

Sctm: 3183(produtios fiur); CI lZI tatoraetipre -12- storage,assuming no additionalinvestment from now until then. Projections of demandand supplyfor agriculturalstorage are summarizedin Table 2.3. Demandprojections are based on regressionof past productiontrends by crop and by state,and balancecalculations assume a minimumratio of one unit of storageto one unit of prc^iction.Disaggregation of the data show that additionalstorage is needed in all regions,at variouslevels, and for both bulk and bag storage.Details of projectionsare providedin Annex I.

2.06 These projections demonstratea clear need for an increasein storage investment at all levels to provide adequate flexibilityand capacityin the Brazilian marketing and storage system. However,this increasein capacitywill not be forthcomingwithout improvedincentives for private sector stockholding and infrastructure investment. These disincentivesinclude: a) unclear tariff policyand investmentreturns; b) competitionwith subsidizedstate companies in the frontierareas; c) high risks to stockholdingwithout opportunitiesto hedge; d) lack of stock financing;e) inconsistentGovernment pricingand marketinterventions; and f) lack of medium and long term finance. These issuesare discussedin detailin ChaptersIII and IV.

Storage Levels

2.07 Five levelsof storageare commonly used in Brazilta) on-farm;b) collection;c) intermediate;d) terminal and e) strategic. Brazilhas one of the lowestrates of on-farm storageamong major agriculturalcountries: only 32 of total production is stored at the farm level (this is an estimate,as statisticsare poor).4 Reasonsfor such a low level include:i) n*ed for off-farmprocessing services; ii) restrictedmedium term investment credit;iii) costs; iv) emphasis of official programson cooperativeand commercial storage; v) shifting crop production patterns, requiring differenttypes of stores;and vi) limited incentivesfor farmersto hold stocks. These issuesare discussedfurther in ChapterIV. Collectionstores are small to medium scale facilities located in productionareas, used mainly for crop assembly and initial processing. Two-thirdsof Brazil's capacityis collectionstorage, most owned by cooperatives,farmer groups or communityassociations. Intermediatestores serve mainlyas transitand assemblypoints, and make up 15Z of total nationalcapacity. Terminal stores are facilities designed for end-users: importers, exporters, processorsor consumers. A large proportionof terminalstorage is owned by agro-industry.There are presently no strategicstores in Brazil;as part of discussionson establishingstrategic stocks, the Governmentis exploring the possibilityof strategicstore construction(para. 3.33)

OwnershiDand Use

2.08 Table 2.4 shows the distributionof storage ownershipand use betweenthe publicand private sectors, and betweenpublic access and own- use. Most (80a) storage facilities in Brazil are privatelyowned and operated. However,Government agencies are major rentersof storageat all levels,to store stocks accumulatedas part of crop financingprograms, stockholdingprograms, and consumer supply schemes(Chapter III discusses

4/ In contrast,in the United States, 60X of storagefacilities are on- farm. -13-

fill.. mp?cjatl 4Icg1ue.tl Storae uid hrketi.g kIte.

Susan ot i 'eJetd StaticSlt,er Seed.for 111Ceeoditce. 1992

lOLl 5t0161 6 StO16 TlLtIO St01a61 11610 Ilil"U IilL^IT SlMenlS/lilCITI ll11Mt I&IILMt UBSOMORMCMt lSll"llt oiUWILl otSlnlS/{ICItl m11)11 16,510 (451.484)I 1111 39J31" (114.271) 11t8S.12t 4W1.A5S (1.225.1631

WOITHAl 5.052,110 218,U300 5.183.122) 0,302.713 2.3611,031 (011,t411) 35.235,543 2,13,11I 112,601.668) SWoIIUSt 1,24,181 51131.904 (11214,80)) 14.120.410 10.4U.0I0 31.14.4201 25161,St51 I5,US.154 h10.A1.S0A)

SWtl 31,126,261 15.116.101 I1U,01,lSl 5.600t31 1 11,18 10,615.I42 3l.252.613 32.111.341 I.UI.116 cum571Ilit 1S.211.112 3,611,14 (11.4656,4) 131.83 5,323,574 4.911.t44 16.211.142 91142.131 17,014,044I

t"Tu ItiL 15.412,101 24I.51,6tS 140,613.115) 31.Ul3,1S 35.234.211 3.141,141 1."8.02? 60.003,013 i3.112.054 Set eficit) totl Defticit (40,613.115) 111.461.445 ISl.419.640,

Source:fINS prodctio figm ad siaiosestiustes (st 1); CIUlai storge figres. -14-

BRAZIL

Agricultural Storage and Marketing Review

Table 2.4 Storage Ownership (1985)

Static Capacity % of Total National ('000 mt) (%) Capacity

Public Use a/

Pulic Sector Warehouses b/ 8,508 27.9 14.2

Privately-OwnedGeneral Warehouse Companies 6,352 20.8 10.6

Cooperatives 15,683 51.3 26.1

Subtotal 30,543 100.0 50.9

Private Use c/

Public Sector b/ 3,309 11.2 5.5

Commercial and On-Farm 7,544 25.5 12.6

Agro-Industrial 18,702 63.3 31.1

Subtotal 29,555 100.0 49.1

TOTAL 60,098 100.0 100.0

Source: CIBRAZEM, Cadastro Nacional de Unidades Armazenadoras a/ Space availabile for lease to the general public. i CIBRAZEM, State Storage companies, rail warehouses. c/ Own use only. d/ IBC, IPA, IRGA (Rio Grande do Sul Rice Institute). -15- the role of the publicsector in storage). About half the storagecapacity is reservedfor their own use by agro-industries,marketing firms, the IBC (BrazilCoffee Institute) and the IAA (Sugarand AlcoholInstitute). Of the storagecapacity available to the public for hire, half is owned by the cooperatives,a third by state storagecompanies and CIBRAZEM,and only one- fifth by generalwarehouse companies (armazens gerais - para. 2.10) 2.09 PrivateSector Involvement. Brazil's privatesector is actively involvedin storage, mainly through provision of storagefacilities for their own use by processing industries,exporters/importers, grain traders and feed merchants. Although not available for rent by the Governmentor producers,this storagecapacity neverthelessrepresents a major proportion of nationally available storage space, one that is usuallyignored in formulatingstorage policy. Incentives for investmentand stockholdingby traders and processors have been limited (Chapter IV). The General WarehouseLaw (para. 3.03) expressly bars traders and processorsfrom offeringwarehouse services to the public (unlessit is througha separate company),which cuts down on potentialrevenues to reduceoverhead costs.

2.010 Generalwarehouse companies (armazens Rerais)provide about 102 of total storage capacity, or about 202 of capacity availablefor public rental. Warehouse companies have traditionallybeen strongin the port areas and adjoining cities, as they originally handledprimarily export crops (coffee,cotton). In the major agriculturalareas of the South,the growth of the cooperatives (para. 2.14) and agroprocessingfacilities providingstorage has eclipsedthe expansionof warehousecompanies. But in the frontierareas, particularly in the Center-West,warehouse companies are a major supplierof storage services togetherthe public storagecompanies (para.3.09). In general, the private sectorhas preferredinvestment in intermediaterather than collection stores: collectionstores have more seasonaluse and lower turnover, and do not exploiteconomies of scale to the extentthat intermediatewarehouses do.

2.11 On the whole, general warehouse companies have providedgood serviceto producersand other users. However,the qualityof servicescan vary widely. The main problemsare underestimationof productweight andlor quality,and provisionof unnecessaryservices, leading to chargesof fraud. This is partly relatedto tariff control, as low tariffslead operatorsto adjusttariffs through other means to cover costs. But other reasons includeweak supervisionof the storage industry,lack of storagenorms for qualityand poor documentation. The problems of fraud are particulaily criticalto the establishmentof stock financingthrough storage warrants (para.4.33).

2.12 The private warehouse industry has recently createda lobbying association,ANAG (Associationof General Warehouses).ANAG's objectiveis to expandthe general warehousing industry, throughlobbying for improved investmentincentives (including higher tariffs) and credit. ANAG's first action has been to recommend new industry-widetariffs, which are substantiallyhigher than previoustariffs.

2.13 Recommendations. There is significantopportunity to expand privatesector investment in storage in Brazil,particularly given the poor performanceand high cost of public sectorstorage companies (para. 3.22). Much privateinvestment will continueto be for own-usefacilities, attached -16- to processing plants or used for trading operations. If Government objectivesare to stimulate domesticstockholding, this substantialsegment of storagefacilities should not be forgotten In publicpolicy making. Decisionsto investin these facilities are intertwinedwith the storage needs of on-goingoperations. The scope for expandingthe role of general warehousecompanies in providing storage servicesto producersand traders is also tremendous.Expansion of storagefacilities however, will dependon improvingincentives: adequate tariffs, reasonable in.erest rates, improved incentivesto hold stocks, reduction in stockhol.ingrisks and related policies to stimulate agriculturalproduction. These incentives are discussedin Chapter IV, and specific recommendationson improvingthem given.

2.14 Cooperatives. About one-quarter of total storage capacityis providedby cooperatives- or half the spaceavailable to producers.Much of this capacitywas built in the late 1960sand 19709 under subsidized creditprograms aiming to expandthe role of the cooperativesin the rural areas. The cooperativesare especially important in the Southernand Southeasternstates, although as immigrants from these areas move into the frontierareas, southern-based cooperatives have establishednew branches. Indeed,the role of the cooperativesin the frontiersis so importantthat in some areas,newly-arrived families cannot begin farminguntil they can join a cooperative(for accessto storageand marketingfacilities), but the cooperativescannot accept new members until they have expandedstorage capacity.Cooperatives are less important in the Northeast,where farmer associationsand community-ownedstores are more common.

2.15 Cooperativesmainly provide collection level stores (although largercooperatives also own intermediatestores or processingfacilities). They have generallybeen able to providestorage and marketingservices at reasonablecost to members (See Table 4.2 for a comparisonof storagecosts) in part becauseof subsidized investmentcredits, exemption from insurance and bondingrequired of the privatesector, and abilityto write off storage costs againstmarketing activities. Cooperatives also rent storagespace to the Governmentfor its marketingprograms.

2.16 Cooperativeperformance varies widely. In general, southern cooperativeshave been strongerand more activethan those in other areas. But many cooperativeshave had weak management and financialproblems, includingdiversion of funds to dubiousor non-existentinvestments. In the Northeastin particular, cooperativesare often shortof workingcapital (oftenbecause they are no longercreditworthy) and cannotpay farmers.

2.17 Recommendations. Cooperativesserve an important functionin providingcollection storage for agriculturalproducers, particularly in the Southwhere managementtends to be stronger. Cooperativesshould continue to be encouraged,but given the financialproblems which are rife throughout the cooperatives,they shouldnot be heavilysubsidized. Greater attention to the financial health and management of cooperativesis essential, especiallyprior to expanding investments. Cooperativescan also continue to providestorage services to Government agencies, and can be a good alternativeto continuingto dependon statestorage companies. -17-

StorageTechnology

2.18 There is a high level of competencein Brazil,both with respectto constructionand operations of agriculturalstorage. Brazilian technicians have developeddesigns for flat bulk storage(araneleiros) which are cheaper thaniconventional silos (AnnexV). Storagelosses in the commercialsector range between3.8 and 5.5Z (includingboth technicaland humiditylosses), while on-farmlosses are quoted on the order of 101 (althoughthis varies widely among regions). Issues include the need a) to establishtechnical standardsfor the industry (there are no legal standardsfor warehouse constructionin Brazil);b) to expandnumbers of trainedtechnicians; and c) to increaseresearch on storage,particularly economics. Detailson storage technologyare providedin Annex II.

CHAPTERIII. PUBLICSECTOR ROLE IN STORAGE

A. Introduction

3.01 A centralissue for the developmentof the storagesubsector in Brazil is the natureand extentof Governmentinvolvement in and regulation of stockholdingand storageactivities. The Governmentpresently plays a major role, both directlythrough using and supplyingstorage ser, 4.ces,and more importantly,through its policiesand programswhich shape patternsof stockholdingand storage investment,as well as market competitionand efficiency. These policies includeagricultural pricing, interest rates, managementof Governmentstocks, market interventions,storage tariffs, and targetedcredit programs. The net result of these policieshas been to discourageprivate sector stockholding and investmentin storagecapacity, and to destabilizeagricultural markets. This chapterexamines Government involvementand makes recommendationson changingthe publicsector role to one of regulation.

3.02 There is a long history of Government regulationof storagein Brazil,at first focusedmainly on exportcommodities. In the late 19509, the publicsector network of storage companies was launched. The 1937 constitutionlegitamized market interventionby the Government in the interestsof national food supply, and subsequentlegislation broadened these powers. Apart from the constitutionaljustifications for Government interventionin storage(based mainly on corporatistprinciples), there are other,quasi-moral reasons usually advanced. The more importantof these ares (a) private entrepreneurshipis thought to lack the resourcesor incentivesto providestorage (particularlyin the frontierregions); (b) speculativehoarding is prevented when Governmentowns storagefacilities and/or stocks; 0c)trade monopolizationby intermediariesis prevented;and (d) producers' market power can be strengthened. In fact,however, Governmentpolicies have done little to meet these objectives,and have often had the reverseeffect from the originalintention. -18-

B. Legal Framework

3.03 Brazil's general warehouses are regulated by the General WarehousingLaw of 1903 (Lei 1102). All enterprisesoffering storage servicesto the public must be registered under this law. Among other things,the law provides fors a) non-discriminationamong clients;b) postingof tariff schedules and services; c) regular inspectionof warehouses;and d) issue of negotiablewarehouse receipts (warrants) as the basis for loans. The law specificallyforbids trading, processing or other activitieson warehousepremises, other than the storingof clients'goods in identifiablelots. This clause was designed to preventfraud on the part of warehouseowners. Generalwarehouses are inspectedand licensedby the local Commercial Council (Junta Comercial), which also has responsibilityfor inspectingwarehouse documents and stockmovements.

3.04 The ex4stingwarehouse law providesa firm basis for regulationof the industry,but there are problems in implementation.Chief among these is the relativelyweak supervisionof warehouses. The key purposeof a general warehouse system (beyond providing storage facilities)is to providean acceptableand trustworthywarehouse receipt (storage warrant) againstwhich banks could lend. Thus, Governmentoversight of general warehousesis desirableto protect all ownersof commodities.Commonly, oversight includes licensing warehouse operators to perform certain functions(inspection, weighing, grading, storage);requiring bonding and istue of receipts; and prescribingpenaltiee for non-performance.In Brazil, however, supervision is not autonomous and rigorous, is uncoordinatedand has little legal support or recourse.Local Commercial Councils,charged with supervisingwarehouses, do not have the resources, althoughother agenciesprovide partial inspectiont Government agencies for their own stocks, commercial banks, tax collectors.Lack of trust in generalwarehouses has hampered the use of storage warrantsfor stock financing.

3.05 Anotherissue is the prohibitionbarring warehouses engaaing in processinQand marketing,a regulationdesigned to preventfraud. In many other countries,dual purposeuse of storage facilitiesis acceptedas a means for maximizingreturns to storageinvestments. The law may not be as much of a disincentiveas commonly believed in Brazil, becausemany companiesset up subsidiary trading companies. However,with adequate supervisionand licensing,there is no need to continuethe prohibition, which would encourageprivate investment.

3.06 The warrantsystem has fallen into disusefor most commodities (coffeeis the exception)over the past few decades,although the General WarehouseLaw gives warehousesthe legal power to issuewarrants. Reasons for the declineincludet (a) fall in demanddue to competing(and often subsidized)Government programs, such as EGF (para.4.26); (b) problems with fraud and poor classificationservices, destroying confidence in the warehousesystem; (c) reluctance of commercial banks to financewarrants withoutbetter guarantees of product qualityand supervision;and (d) lack of adequatepenalties under existing regulations. Storagewarrants are discussedin more detailin ChapterIV. -19-

Recommendations

3.07 Regulationof the storage industry through a legal framework designedto protectcommodity owners should be the main focus of Government intervention,rather than seeking to establich extensivepublic sector storage providers to compensate for abuses in the private sector. Confidencein the general warehouse system is a sine qua non for stock financingthrough storage warrants. The Governmentis workingon proposals to addressthese problems,either through changes in Lei 1102 or through codificationof additionalregulations. Key pointsalready recommended by Governmentworking groups include: ti) allowing warehousesto engagein trading and processing; (ii) requiring insurance; (iii) improving supervisionand licensing;and (iv) introducingan informationsystem on use of warrants.

3.08 The missionrecommends that the followingsteps be taken:

(a) establishan independentregulatory commissionto supervise the general warehouse industry; terms of referencewould includelicensing, inspection and legal powersto enforce penalties;

(b) introducea systemof two-year licensing;licenses would be availableto all warehousesmeeting established standards and fulfillingrequirements for bonding, etc., and would not be used as a barrierto market entry;

Cc) establishminimum licensing requirements,including minimum capital and insurance coverage (customs warehouses are alreadyrequired to do this) and extendthese requirementsto cooperativesand state storagecompanies;

(d) allow warehouses to engage in trading and processing activities;

(e) set up an extensivesystem of bondingfor warehouses;and

(f) improve commodity classificationand grading and improve enforcement(para. 5.13), to restoreconfidence in warrants.

The Government has recommendedthat the Ministry of Agricultureand CIBRAZEMbe given responsibilityfor oversight. The missiondoes not recommendthis, due to the weakness of these two institutions,combined with potential conflicts of interest between CIBRAZEMs roles as both inspectorand providerof storage. An independentregulatory commission would be better.

C. PublicSector Institutions

3.09 Multiplepublic sectorinstitutions are involvedin the storage subsectorin roles ranging from providing storage servicesto setting policiesand prices,a factorwhich has causedproblems in formulatingand .20-

coordinatingstorage-related policies. Major institutionsare listedin Table 3.1. ald their roles stumarizedas followss

(a) SuPPlY of Storage Services: 17 major parastatalcompanies providepublic storageservices at both the federaland state level.Storage facilitiesare also owned and operatedby railways, the Coffee and Sugar Institutes and the Port Authority;

(b) Users of Storage Services: Government agenciesare major depositorsin both public and private sectorwarehouses; indeed,Government dependence on state storagecompanies has been one factor in keeping public sectortariffs extremely low. Largest users are CFP (under the MinimumPrice Program) and CTRIN (wheat); and various agencies for consumerfood supply (SEAP,COBAL, INAN and FAE).

(c) StoragePolicys Storage policy is effectedby a numberof agencies in the Ministries of Agriculture,Finance and Planning, including major storage providers and users (CIBRAZEM,CFP, COBAL). SUNAB (NationalSuperintendency of Supply) polices price controls and SEAP buys and sells stocks;

(d) GovernmentServices: SNAB (NationalSupply Secretariat) in the Ministryof Agriculture is responsiblefor inspection, supervision,classification and grading, although much of this is actuallycarried out at the state and local level. The Ministry of Agriculture, IBGE, and many other institutionsprovide market information (Chapter V).

CIBRAZEM

3.10 CIBRAZEMis the most important public sectoragency responsible for storage. Createdby a merger of two storageregulatory agencies in 1972, CIBRAZEM'srole in storage was significantlyexpanded in 1975 under PRONAZEM(para. 3.19), as CIBRAZEMmoved into supplyingstorage services to the publicand to encouraging the establishmentof state storagecompanies (para.3.13). CIBRAZEM'scurrent static capacity is about 3 millionmt, representing51 of national storage capacity. Its market share differs markedlyamong regions:in the South, it representsonly between.04 and 1.81 of capacity,but in RondOnia 76.51 and in Roraima91Z. CIBRAZEM's policyhas been to concentrateits activitiesin deficitregions (Center- West frontier,North and Northeast) judged to be unattractiveto private investors. CIBRAZEM'smarket dominance and low subsidizedrates have in turn discouragedinvestment in these areas. In recentyears, CIBRAZEM has divestedsome or all of its storage capacity in certainstates to state storagecompanies.

3.11 Officialintent on CIBRAZEM's future role in grain storageis unclear. Although recent policy statements call for a more regulatory role, includingmanaging security stocks, the companyretains its broad mandate. Responsibilitiesare: (i) direct participationin planningand executingGovernment storage programs; (ii) regulation of agricultural -21-

AgriecultureStorage and MarkotingReview

Tablo 8.1 M lor PublicSector Institutions In Storase

A. StoraseCompanloi

1. CIBRAZEM Companblhde ArmazenamentoBrasi elwr (BrazilianStorage Company) 2. CASECO Companhi do Armazinuo Silosdo Qolis (olds StateStorage Comp ny) S. CASEMO Companhiado Armsz4nso Silo do Estodode Mlinis Coral. (Nines Coral. State Storage Company) 4. CEAGES? Companhlado Entrepostos a Araz6ne Corals do Estododo So Paulo (SboPaulo St.to Storage Company) S. CESA CompanhiaEsttdual do Silos e Armz6ns (Rio Crando do Sul) (Rio Grand. do Sul State Storage Company) S. COPASA CompanhisParaneonse do Silos * Armazonagom (ParandState Storsag Company) 7. COCAR CompanbhiCatarunense do Arwmazns (Santa Catarina State Storage Company) S. CACEP Companhiado Areaz6ns Coral. do Pornmbuco (PornambucoState Storage Company) 9. CIDAGRO CompanhisIntograda do Desnvolvisento Agropocudrio (Para ba State Storage Company) 10. CASEMAT Companhisdo Armz6ns * Silos do Estado do Uoto Grosso (Mato Cross. StaeO Storage Compny) 11. AGROSUL Emproa do Servigos Agropecudrios do Mato Grosso do Sul (Mato Crosso do Sul State Storage Company)

B. Ministerial Aoencioe

1. CFP Comlisto de Flnancla_nto do Produglo (Production Flnance Company) 2. COOKI Cospanhls Brasileira do Alimentasto (BrazilIan Food Company) 8. CTRIN Coolesto do Comprado Trigo Nacional (National Wheat Buying Coalmsion) 4. SNAB Socretarla Nacionaldo Abasteclmento (NationalSupply and PriceSecretariat) S. SEAP Secretoria Especlal do Ab atecimento * Pregos (Special Supply and Price Secretariat) S. CIP Conselho hnterminusterial do Progos (Interminlsterial Price Council) 7. SUNAS Suporlntend8ncil Nacional do Abastecilmto (National Supply Superintendency) -22- markets; (iii)provision of storage services in deficitareas; and (iv) managementof the federalstorage system. CIBRAZEMmay legallyfunction as a generalwarehouse company, issue warrants,participate in and coordinate state warehousecompanies, and collectstorage data.

3.12 CIBRAZEM'sfinancial and operating performancehave constrained its impacton storage policy and the storage subsector. Key problems include (i) politicalappointment of management;(ii) lack of well-defined companypolicies to guide managers; (iii) weak reportingrelationships; (iv) inabilityto attractand retainqualified staff; and (v) low salaries, leadingto corruption (especiallyin grading). Performancefigures are poor: a turnoverof only 1.3 in 1985 (based on total throughputof 3.8 millionmt) and in 1986, occupation rates of only 552 on a nationwide basis. The total deficit in 1986 was Cr$ 51.6 billion(about US$4 million),largely due to losses from the operationalaccount. Financial lossesstem from a) low storage tariffs(para. 4.49); b) failureto charge for capitaland depreciationin the tariffstructure; and c) inefficiency due to overstaffing,operating procedures,and location. CIBRAZEMargues that its mandate to provide storage services in less accessibleand attractiveareas also increasescosts.

State StorageCompanies

3.13 There are ten major and several smallerstate storagecompanies which complementCIBRAZEM's public storage network (Table3.1). Together, the state storagecompanies account for 72 of total staticcapacity, about 4.2 millionmt. Size of the individualcompanies ranges from about 50,000 mt to nearly 1 millionmt. Many of these companieswere establishedin the late 1950s and 1960s, in response to the same factorsencouraging the developmentof the federalstorage system (para.3.02). In most cases,the state companies are mixed companies, predominantlyowned by the state government,but with sharesheld by CIBRAZEM(varying widely from 0.1Z to over 45% of total shares)and (to very small extent)by the privatesector.

3.14 Performanceof the state companies is also variable, but is mediocreto poor in most instances. The state companiestend to be even more prone to politicalpressures than is CIBRAZEM,with expectedresults on their operations.Other problems includelow salariesand incentives, low tariffrates, and overemployment. As in the case of CIBRAZEM,the major clientsof state companies are Government agencies,such as CFP, engagedi. agriculturalmarketing and distribution.(For example,CFP uses 85% of the capacityof CEAGESPand 70% of COPASA.) Tariffpolicies differ widely among state companies,but are usuallybased on CIBRAZEMrates and thus are subsidized(para. 4.48). Most state storagecompanies do not factorin capital costs, but rely on grants from state governmentsto constructnew stores.

D. OfficialStoraae-Policy and Pmrams

StoragePolicy

3.15 Officialstorage policy aims to complement overallGovernment goals of increasing agriculturalproduction and stabilizingfood supply. -23-

The Government'sstrategy focuses on three sets of actions a) investment in basic infrastructure (storage, irrigation,transport) to expand cultivatedarea and increase pro4uction;b) use of policyinstruments to stimulateproduction (rural credit, minimum prices, regulatory stocks); and c) correctionof institutionaland administrativebottlenecks. Agriculture policy is heavilyproduction-oriented, with an emphasison expansion.Goals for productionincreases are 30? over 1985 productionlevels by 1989, a total of an additional15 millionmt of grains.

3.16 Storage plays an important role in two are&ss in expanding infrastructureto handle targeted production increases, and supporting price stabilizationand securitystock programs. The essentialcomponents of officialstorage policy are: (a) expansionof storagecapacity by some 15 millionmt (Table3.2); (b) establishmentof strategicstocks for food securityand market stabilization,equal to 10? of projectedtotal grain production(about 6.5 millionmt); and (c) incentivesfor increasedprivate sectorinvestment in storagefacilities.

Table 3.2. GovernmentGoals for Grain StorageExnansion ('000mt)

2 of Total TvTe 1986 1987 1988 1989 Total Need

1. Farm level/community 200 400 700 1,000 2,300 15 2. Collection 900 1,300 3,000 3,600 8,800 57 3. Strategic 900 900 1,200 1,200 4,200 27 4. Terminal (public only) 40 40 40 40 160 1 Total 2,040 2,640 4,940 5,840 15,460 100

Source: SEPLAN

3.17 Governmentplans for expansion of storage capacityput a heavy emphasison collectionand strategic storage. Expansionof collection storagerecognizes the importance of local storage capacityto reduce transportcosts. 5 On a regional basis, the Government is emphasizing storageconstruction in the Center-Westand Southeastregions, which would absorba third each of projected investments. The Governmentestimated that total investmentcosts for its storageprogram (including both public and privateresources) would total Cz$2.2 billion in 1986 alone (US$157 millionequivalent). 6 The Government has emphasizedthe importanceof the central role of the private sector in achieving required levelsof investment,and has proposed several incentives:a) expandinglines of credit for storageconstruction; b) guaranteedleasing of privatestcres by public companiesfor up to five years; c) a programto encourageprivate sectorconstruction and financing of regulatory and strategicstores; d)

S/ Federative Republic of Brazil, Ministry of Transportation,GEIPOT (1982).

6/ At the then-prevailingexchange rate of Cz$14- US$1 plus an additional Cz$715million (US$51million equivalent)for research,training, re- equipmentof public sectorwarehouses, and cold storagefacilities. -24- suretybonds; e) improved market information;and f) stock financing. CIBRAZEM'srole would be altered to one of supervisionand regulationof the industry,and the public sectorcompanies would concentrateon storing officialand strategicstocks.

3.18 Other Policies. Many other Government policiesand activities have a directimpact on the storage subsector, and are discussedin the followingchapters. These policies includet (a) storagetariffs (para. 4.48); (b) incentives for stockholding(para. 4.08), includingstock financing;(c) gradingand classificationservices (para.5.13); and (d) market informationsystems (para. 5.19).

InvestmentProRrams

3.19 The Governmenthas been active in promotingstorage construction throughcredit programs, often at subsidized interestrates. In the 1960s and early 19708, the Government actively encouraged expansion of cooperativesthrough such subsidies,and the share of cooperativesin total storagemarkedly increased. The World Bank was involvedin one storage program,PRODESAR, which supported a line of creditthrough the Bank of Brazil.'Although demand for credit was high, the introductionof a new Government prog:am, PRONAZEM (National Storage Program) at subsidized interestrates led to a cancellationof the Bank loan. PRONAZEMproved a popularprogram, due to significantsubsidies, and by 1978 had financedan estimated1.3 millionmt of on-farmstorage and 2.4 millionmt of secondary storage. The subsidizedinterest rates reducedcapital costs ead enabled warehousesto have lower revenue requirementsto cover costs,a factor which still affectstariffs in 1987. Financing for PRONAZEMceased in 1979. With the slashing of agriculturalcredit subsidiesin the early 19809,storage investment dropped. Storage capacity expanded by 43? between1975 and 1980, but by only 201 between1979 and 1985.

3.20 Major creditlines for storageinvestments are summarizedin Table 3.3. None of these programs were originallydesigned solely to support storageinvestment, and creditlines are generallyinsufficient for demand, particularlywith recent production increases and escalatinginflation. Smallscaleon-farm storage is also financed throughregular rural credit lines supportedby the Bank under the NortheastRural DevelopmentProjects. The Governmentintends to allocate an additionCz$9.7 billion to storage investmentprograms (about US$187 million in October1987), using funds from the Rural DevelopmentFund. The creditwould financean estimated5 millionmt of storagein both the private and publicsectors, and would focusmainly on large-scalefacilities, including strategic stock capacity.

7/ Loan 857-BR,approved in September 1972. See IBRD, Appraisalof a Grain StorageProiect. Brazil (Report No. PA-135a,August 2, 1972) and IBRD, ProiectPerformance Audit Reports BrazilGrain StorageProiect (ReportNo. 2590, June 29, 1979) -25-

E. Issuesand Recommendations

Issues

3.21 The two predominant issues related to Governmentstorage policy and interventionare i) the excessiveand poorlydefined role of the public sector;and ii) the heavy emphasis on expansionof storagelafrastructure and relativeneglect of incentivesfor stockholdingand investment.

3.22 Public sectorintervention in storageremains pervasive and poorly coordinated, despite recent policy statements aiming to narrow and refocus directGovernment involvement. A central issue is the role of the public sector in nrovidinadirect storage services. The performanceof public sector storagecompanies is generally poor, and they have not, overall, fulfilled their original mandate of providing storage services and promotingcompetition and investmentwhere thesewere lacking. The public sectorstorage network is used largely by Governmentagencies or by large farmersand agroindustries- at highly subsidizedrates. Publicly-owned storagefacilities are often poorly located, turnoveris low, and quality of servicescan be poor. Costs are high: most companiesoperate at a loss, and are a drain on state and federaltreasuries, even if low tariffs appearattractive to governmentusers.

3.23 Publicstorage companies, moreover, discourage rather than promote privateinvestment, by settingbelow market rates and by gainingthe lion's share of Governmentstorage contracts. This impactis the greatestin the very regionswhere the Government wishes to stimulatestorage investment, primarilythe frontierstates. Because frontieragriculture is dynamic, shiftingamong crops and locales, warehouse operaters have higher than normal investment risks. Without the ability to competefor storing Governmentgrain purchasesor to cover some overheadcosts throughgrain trading,private entrepreneurs are at a disadvantage.Subsidized public storagetariffs, which cover neither capital costs nor in some cases all variablecosts, are hardly the basis for buildinga competitiveindustry.

3.24 RecentGovernment policy statements (para.3.16) have recommended that the role of public sectorinstitutions be redefined,in recognitionof their generally poor performance. These new roles would include supervisionand regulation of the storage industry,market information services,and managementof strategic stocks. But the currentperformance problemsof public sectorinstitutions and their causes (whichremain) call into questiontheir ability to performother functions.In some states,it is alreadyevident that low public-servicesalaries and lack of financing in the classificationsystem have led to poor services. Moreover,any fundamentalredefinition of functions, from storageprovider to oversight institution,would require significant institutionalrestructuring, which would be unviable without addressing the basic problemsfacing public sectorinstitutions.

3.25 Another key issue is the coordination of the roles and responsibilitiesof the many public sector institutionsinvolved in storage, from planning and policy making to provision and use of storage facilities. There is significant overlap among institutions, and BRAZIL AGRICULTURALSTORAGE AND MARKETINGREVIER

Credit Lines for Storage Investments

Any physicalor Sanco do Brnl . Storage constr. n- Up 64b M .rogralNbcienal de juridical entity. to of fixed Ton years with S 15/yr. plus TN in CxSM00 sl ion privet, banks form, at collection intetment. ye grae. ^ ioe|oncia . Agr,p.,uori.) authorizedto deal or Intermediary Cente-South; In ior. credit 131/y. plus 0TH in nd lel, incluse l atNE.f NW state banks *econdary equipent V J inhon Valley (drier.. etc.) and Espirito Sante. Crop faere end mea Cont. (Froo ot new t to 100b of inm. pFr f xed tmi. 6 81/yr. p Th in CaJ40J de Znveott_Oo1 bhr d re of cattle, storge units silIion Agropcuarie-) hog for for *mel lhold re yre. with 2 yra. Center-South3 or poultry. agr. products, 801 for _edius fr;..Ila ec-le re; for equ;ipnt plus OT1 iEin ero and farmr.; aO for wiyrwIth I yr. Jouitinhonh- Valley inputs; *apansions, large frsr and rc. and Enpirito Snto. r..tructur'ng end between 80 nd 1005 the purchase of for cOee. eiUpset *us. to etorge.e e *eFr shO s#.ign Coopratives, public eas off-fre coltlection UP to 705 of fixed rogrear_*d aon""ea mnd privOte Up to 8 years eith 2 1SS plus CT" in Callao *illion Oack ArawiengSM) stores; intermaedite intveetme$. years gr"c. SWAM/SIUME warehouse companies, and terminal level af, star Vole do CJS50 willion bulk facilt ies. Jquitinhnh end etores. Eapirito Santo; 1Si plIus 0TN in rest of country.

ftlral enterprises, ONDE and i La Construction of Small and mediaun yr.. eith 3 yr.. S 75/yr. Nocimalde coops, generalI cor eepondent banks. storg space. to plus ON M ~oIlvi_enOo co a warhousing ceo p,. nd. up to o0n int grace. for mm I IendW m sia Sociel) and the SW, NE, (M, industries, IS/yr. public private Espirito Santo and ugro-nduOtri e. plDu 07Th *or urw the SBtE arem of nd. "inae Cerais; up to 70S *elswhere; up to s5o for lrs" ind. anywhere. Rural industries. maNe Restructuring and Up to sox of 5 years with from 3 SX/*r. plum OTN for modernization of investment; up to to 12 month* of equpment made in warehouse. 705 in the NE. Grace. including u. Brail; 105/yr. plu equipsent; N for isorts. contOrot td ntmosphere torge. -27- responsibilityis often unclear, creating a complex environmentwith undefined and often confused inter-agencyrelationships, and lack of clarityon public storage policy. This situation is likelyto remain unresolveduntil the Government clarifies who is going to do what to achievewhich policy goals, and until publicwarehouse companies are not under pressure to cater to the divergent interest of multiplepublic agencies.

3.26 Publicsector storage policy focuses mainlyon expandingstorage capacityand neglectsthe incentivestructure to encouragestockholding and investment. The privatesector will not expandstorage capacity if private stockholdingis financiallyunattractive, due to high interestrates and inflation,high Governmentminimum prices, or lack of commodityfinancing - unlessthe storagecapacity is designated for publicstocks. These issues are furtherdiscussed in ChapterIV.

Recommendations

3.27 Role of the PublicSector. One of the most importantsteps wh4:h the Governmentcan take to stimulate storagedevelopment is to reducethe interventionand activitiesof the publicsector in storageand marketing. The Governmentneeds to focus its policies much more narrowlyon the functions which governments traditionally perform well (essentially regulationand oversight)and decreasedirect provision of storageservices and market intervention.At the same time, the focus of policiesshould shift to improving incentives for private sector stockholdingand investment.

3.28 This reportcontains many specificrecommendations to help build a frameworkfor national storage policy and Government'srole. In sum, elements of such a policy should include: a) in the medium term, divestitureof publicsector storage companies and increaseduse of private sectorfacilities for Government stock programs; b) increasesin public sectorstorage tariffs to market rates in the short term (para.4.48); c) improvedlicensing, supervision and inspectionof storagefacilities (para. 3.08); d) decreased Government interventionin marketing and stock programs,with incentives for private stockholding(para. 4.07); and e) improvedcoordination of Governmentactivities in storage.

3.29 Existingcapacity of public storaRecompanies should be divested. Offeringincentives for private investment and stockholdingwould be a lower-costand more effective way of stimulatingexpansion in storage capacitythan continuingpublic sector involvement.It is recognizedthat there are financialand political difficulties,especially in food deficit areas and where public sector storage is poorly situatedor maintained. The pace of divestment would denend on private sector interest in purchasingand alternativestorage availability. For example,in the South,where publicsector storage is only a small part of total storage, divestmentshould proceed fairly quickly; in the Northeast,it could take more time. In the meantime, public sectortariffs should immediately be raisedto marketlevels, even as the divestmentprocess is proceeding(this would have the added advantage of makingpublic warehouses more attractive to investorsand leveling the playing field in terms of competition). Governmentagencies should turn to the privatesector to rent their storage needs, even for the modest regulatorystocks proposed (para. 3.38); tariffs -28- shouldnot be an issue if public sectortariffs are increasedto private levels. Other private sector incentives could includesuch programsas fixed term Government rental contracts for new warehouses and tax incentivesfor investmentin frontierareas.

3.30 Divestmentwould mean a very much diminishedrole for CIBRAZEMand the state storagecompanies. The key need is improvedsupervision and inspectionof storage facilities,in line with recommendedchanges in storagelegislation and standards(para. 3.08). CIBRAZEMcould fill this role, but this would mean a fundamentalredefinition of the institution's functionsand a massivereorganization and staff reductions.In this case, CIBRAZEHwould be betterplaced as a unit under SNAB or the Ministryof Finance,rather than as a separateparastatal. The case for givingstorage companiesother roles is not convincing,however. It has been proposed that the CIBRAZEMand the state companiesmanage nationalbuffer stocks, but there is little justificationfor the substantialstocks proposed (para.3.35). Other proposalsto use CIBRAZEMand the state companiesto providetechnical assistance, industry oversight and data collectionare also difficultto justify. Many of these functions,particularly data collectionand technical assistance could better be providedby other specializedagencies (such as IBGE for statistics)or the privatesector (technicalassistance for evaluatinginvestment proposals).

3.31 Coordinationof Storage Policy. The Government has proposed establishingnational supply committee with representativesof the Ministriesof Finance,Planning and Agriculture,CIBRAZEM, CFP and COBAL to coordinate supply policy, including storage. This would assist in providinga forum for the diverse institutionswith storageinterests in both the public and privatesectors. But responsibilityfor storagepolicy shouldalso clearlybe grounded in a singlecentral institution, perhaps the Ministryof Finance, as the key storage decisionsshould focus on financialand relatedincentives for investment and stockholding.Such a unit could perhapsbe served by a reorganizedand substantiallytrimmed CIBRAZEM.

F. SecurityStocks

GovernmentPolicy

3.32 The Governmentintends to establish buffer stocksof basic foods (rice,wheat, beans,maize, powdered milk and meat). Althoughdetailed planningof the programhas yet to begin,policy statementsindicate that the stockswould essentiallybe used in two ways: i) as regulatorystocks, to mitigateprice swingson the domesticmarket; and ii) as emergencyfood stocksin the event of domestic food shortfalls.Estimates of total stock levelsvary widely, from a minimum of 2.4 million mt (10 of current nationalgrain consumption)to a high of 6.5 millionmt (equivalentto 10l of projected1989 grain production).

3.33 The stocks would be located throughout the country, but particularlyin major consumingstates and close to major demandareas. No definiti-veplans have been prepared, but some officialspropose that two- thirdsof the stocksbe held in the rural areas (whereland and operating costs for storageare lower) with the remainingone-third near consumption -29-

centers. Criteriafor storage location would be accessibilityto major transportationroutes and demand centers. Government projectionsof nationalstorage needs (Table3.2) includeconstruction of separatestorage facilitiesfor these buffer stocks. However,ownership and managementof these facilitiesand of public stocks have not been completelyclarified. Severalproposals call for CIBRAZEMto constructand managethe facilities, othersforesee private sector involvementin storage construction.No singleagency to make decisions concerning stock purchases,turnover and releasehas been nominated. Moreover,the use of regulatorystocks as part of a price supportprogram is still being studied.

Issues

3.34 Government plans to establish large buffer stocks raise serious questionsconcerning the cost and impactof such a program,questions which have not yet been well discussed in Brazil. The significantsize of the proposedstocks pose problems on potentialmarket impactand relationship to other Government policy goals. Issues center around a) lack of a nationalfood securitypolicy; b) the high costs and relativeinefficiency of buffer stocks in achieving food security objectives;and c) unclear arrangementsfor managingand financingof Governmentstocks.

3.35 Large buffer stocks are expensive, difficult to manage, potentiallydestabilizing if mishandled, and relatively ineffectivein achievingfood security. Considerableanalysis has been done on the relativecosts and benefits of alternativefood securitypolicies. 8 The overall conclusionsare that most countries could achieve a modest reduction in the instabilityof domestic food prices by maintaining domesticstocks in the private sector and by allowingnearly free trade. Achieving food security through holding buffer stocks is not only expensive,particularly because large stocks have to be held to make a significantimpact, but also relativelyineffective.

3.36 Estimatedcosts of a 5.2 million mt food securitystock in Brazil would be US$765million (Cz$4Gbillion at October1987 exchangerates) for the first two years;annual costs thereafterwould be US$140million (Cs$ 7.3 billion)for interest and storage charges (these estimatesdo not includecosts of constructingadditional storagecapacity, which would be on the order of US$lOO/mt, or US$520 million). In comparison,Brazil's importbill for grainswas US$823 million in 1986 and US$373million in 1987, primarilyfor wheat. Security stockswould thereforecost nearlyas much as or exceedthe grain importbill.

3.37 Adequatepipeline and reserve stocks are importantto Brazil's food security and market stabilization;the basic issue is whether separate,Government-owned stocks are requiredor whether objectiveswould better be met through private sector stockholding. The Government currentlyoperates an ad hoc stock program, where stocks are held by various Government agencies for various purposes. The Government intervenesin domesticmarkets both throughstock purchases and sales,and jI For example, see Donaldson (1984); Reutlinger and Knapp (1980); Huddlestonet.al. (1984);and Valdes (1981). Annex IV containsfurther discussionof food securitypolicy. -30- throughexport and import restrictions. The Government'srecord on this has Dee. poor, and markets have been destabilized.9 In a countryas diverseas Brazil, the sheer difficultiesof effectiveintervention in domesticmarkets and in managing sizeablestocks are daunting. Regulatory stockscan potentially destabilizemarkets, if improperly managed. In contrast,stocks held by the private sector,coupled with improvedmarket informationsystems, will have a greater stabilizingeffect and will have the advantageof greaterflexibility.-° 3.38 An optimum food security policy would be to depend on internationalgrain marketsfor unforeseenfood deficits,while encouraging maintenance of adequate stocks throughout the agriculturalmarketing system. The key to price stability and food security lies in the developmentof a marketinginfrastructure using all availabletechniques of hedging,arbitrage and collateral financing, to reducethe risks inherent in storingand tradingagricultural commodities. 11 Developmentof futures marketsand freeingexternal commodity trade would providegreater price stabilitythan would a minimumprice program. It would provideincentives for the private sector to hold sufficient stocks,thereby drastically reducingthe justificationfor Government-ownedstocks. In such a system, stocksare held by a wide number of market participants(producers, traders,industry) who respondto market pricemovements. Futuresmarkets mitigate price risks, encourage private stockholding,and provide informationon expectedfuture price trends,demand and supply,better than the Governmentcan. If, for political reasons,a minimumprice programis deemednecessary, one shouldbe operated at the lowestpossible cost, with the leastnegative impact on domestic markets. This would includesetting minimumprices below market price trends,minimizing Government purchases and stockholding,and defining clear rules for Government market interventionand stock sales.

3.39 ImprovementsP-a urgentlyrequired in the procurementand handlina of Governmentstocks - the short term. In the mediumterm, reform proposals for trade liberalization,minimum price schemes and stock financing(Chapter IV) will resultin minimalGovernment stocks. But while thesemeasures are being implemented,steps need to be taken to improve stockmanagement and prevent market destabilization.Main recommendations are:

(a) unify management of all Government-ownedstocks under one agency,and issue clear rules for procurementand disposal, includingno sales outsideof establishedprice bands;

9, This is analyzedin IBRD (1985).

10/ For example,in 1977 the US began a systemof farmer-ownedreserves, wherebythe Government paid storage subsidies to producersto hold grain on the farm unless prices rose to a trigger level. For a discussionof the costs and benefits of this program,see Salathe et.al. (1984). il/ See Chapter IV for a discussion of these relationships,and the Glossaryfor a definitionof terms. -31-

(b) estimate minimal operational stock levels required, and adjustthrough import or export;

(c) clarify institutional relationships among institutions involvedin stockholdingand storage,issue clear mandateson each institution'srole, and coordinatethrough an effective centralagency (suchas the Ministryof Finance).

3.40 In sum, food securitypolicy in Brazil shouldbe based on trade, with increasedincentives for privatesector stockholding and improvements in handlingof Governmentstocks (which eventuallywould be minimal). To addressfood securityof low-income groups,any subsidyprograms should be targeted rather than general. Most importantly,domestic marketing, pricing and storage infrastructureshould be improved, as a better functioningand integratedmarketing system will be betterable to cope with food supplyproblems.

CHAPTERIV. ECONOMICAND FINANCIALISSUES

A. Economicsof Stockholding

Benefitsof Stockholding

4.01 The demandfor storage facilities is based on desiredlevels of stocks,which in turn depend on potential benefits and incentivesfor holding stocks. It is the benefitsderived from stockholdingwhich usually form the basis for evaluatingthe reiturnsfrom storageinvestment, and which are important in shaping Government policy on commodity storage, particularlyin the areas of food securityand market stabilization.

4.02 The obviousbenefit of holding stocksis higher returnsresulting from price increases. Conventionaleconomic theory states that stock levels are determinedby equatingthe marginalcost of storageand the price spread over time. That is, peoplewill hold stocksin expectationthat priceswill increase,and that this increase will equal or exceed storagecosts. Stockholdingcontributes towards price stabilization, both for the individualfarmer (throughallowing him to sell later in the seasonwhen pricesrise) and for the market as a whole. The role of stocksin price stabilizationis discussedbelow (para.4.10).

4.03 While expectationof increased returns is at the centerof many decisionsto hold stocks,there are other importantfactors, summarized as the convenienceyield on stockswhich affectstockholding decisions. Stocks providecompensation through means other than commodityprice increases: by facilitatinga smooth supply of goods for processing or marketing operations,or evening out transport demand. The notion of convenience yield is difficultto quantify; however, often producersor companieswill hold stockseven when price increases do not entirelycompensate for the costs of stockholding. -32-

4.04 Availabilityof on-farm storage and processing helps stabilize transport supply and coets, particularly in Brazil where transport infrastructureis limited. If a farmercan storegrain on-farmfor several months,he can benefitfrom off-peak transportrates (sometimesas much as 5O0 less than peak rates).12 On-farm cleaningand dryingof grainwill also reducetransport costs, up to 102 (or more) dependingon the humidity of the grain.

4.05 Sufficient and technically appropriate storage facilities contributeto reducingthe costs and increasinathe efficiencyof holdina stocks. Adequate facilities in the appropriate location are vitally importantin any marketingchain, providing the facilitiesto assistin lot assemblyand transportof commoditiesfrom producerto consumer. In Brazil, increasingmarket efficiency will assist in keepingdomestic food pricesas low as possible and in maintaining export competitiveness.Adequate facilitiesalso contribute to reducing losses and physicaldeterioration resultingfrom substandardstorage facilities.Marketing efficiency is also increasedby moving toward bulk handling facilities,an importantstep particularlyin the major grain producing areas of the Southand Center West. Bulk facilitiesboth reduce handling costs,through more rapidand less labor-intensivehandling methods (bagging costs, which can be substantial,are eliminated,while loadingand unloadingare more efficient) and reducelosses, through more securestorage. 13

4.06 There are severalother benefits that accrueto the Governmentand to the economy as a whole from stockholdingand storageinvestment. Increasedstocks and storagefacilities will cut down on the need for costly publicsector intervention in supplying emergency storesduring Brazil's almostregular storage crises of the past two decades. Commercialstock financing, an active futures market, and increased private sector stockholdingwill assistin Government objectivesof -tabilizingprices and will reducepublic sectorfinancing of stocks (para.4.25). To the extent that expandedand improved storage facilitiescut down on crop losses, exportscan be increasedand/or imports can be reduced,thereby earning or savingscarce foreign exchange. Finally, improvedmarketing efficiency (through lower handling costs, increased flexibility,better use of transport,better market and price information)will contributeto keeping domestic food prices reasonable and towards improving Brazilian competitivenessin internationalmarkets. Incentivesfor Stockholding

4.07 Inflation, Government price controls and foreign exchange managementall affectdecisions to hold agricultura,Lstocks or to investin storageinfrastructure. As noted above,the economicsof stockholdinghinge

12/ One farmerin Parantquoted a transport price of Cz$15-20per mt at harvest,compared to Cz$8-10per mt prior to harvest.

13/ For example,CEAGESP (Sao Paulo State StorageCompany) charges three times as much for unloading bagged goods over bulk (Cz$ 31.67per mt for bag vs. Cz$11.20/mt for bulk), and also imposesan additional chargefor openingbags prior to drying (Cz$27.83/mt). -33- on inventoriesadding value. But a variety of factorsdistort these economicfundamentals in Brazils

a) The most important factor affecting Brazilian storage, notwithstandingincentive problems related to storagetariff regulationsand public sector investments,has been the extremelyhigh cost of financing inventories. For most of the last five years, inflation has been accompaniedby very high real interestrates. As a result,the cost of carryingstocks in Brazilhas been six times higher than in NorthAmerica in real dollarterms.

b) Concernabout inflation,particularly for food commodities,has provoked Government interventionsto dampen domestic price rises,largely through export bans and price controls. This has increased uncertaintyand risk by making the prospect of profitable stockholding dependent on volatile Government policies.

c) Risks of devaluationhave increased the use of commodity inventoriesas financialassets. Inflationhas been associated with periods where large domestic currencydevaluations have occurred (called 'maxis' in Brazil). Becauseagricultural commodities(or even better, gold) tended to hold theirvalue better than most financial assets,inventories increased beyond economicneeds, injectingincreased uncertainty into markets.

4.08 Holdingstocks entails risks that the value of the stockswill drop due to price swings. In Brazil,there are two main sourcesof price swings: internationalcommodity price movements and Government interventionin domesticagricultural markets. Analysis of Brazil'sagricultural pricing policies14 concludesthat Government interventionin agriculturalmarkets throughthe minimum price scheme and agriculturaltrade controls,among other policies,has made domesticstockholding a highly speculativeeconomic activity. This has resultedboth from the high degreeof uncertaintyover Governmentpolicies (export and importcontrols, for example,are constantly being imposedand removed),as well as to the effectson commodityprices from Governmentbuying and trade control operations. At the same time, stockholderswho did not have access to externalfutures markets could not hedge internationalprice increases.

4.09 Clearly,any framework of incentivesfor encouragingstockholding must address these problems, through i) providing reasonably priced commodity financing opportunities; ii) decreasing Government intervention in commodity markets and establishingclear 'rules of the game*;and iii) developingmeans to compensatefor stockholdingrisks. The key to providing these incentives is developmentof a futures market (para. 4.15) and associatedstock financing through warrants (para. 4.33).

14/ See IBRD, Brazils Pricing Policy Issues in Agriculture,Draft Grey Cover (December6, 1985). -34-

Market Stabilization

4.10 The willingness of market participants to hold stocks of agriculturalcommodities is a crucial element in creatingstable domestic markets. Competitivestockholding (i.e. throughprivate storage and use of futures markets) reduces the variance of annual prices and annual consumptionof agriculturalcommodities. 15 Although stockholdingdoes not forestallprice peaks,peaks and valleys are smoothedwith the existenceof a well-functioningmarket backed up by stocks, reducing the need for Governmentintervention in price stabilization.

4.11 Agriculturalstorage requirements and price movementshinge on the seasonalpattern as well au the size of harvests. The supplyand demandfor stocks marries the cost of carrying inventorieswith the need for consumptionover the year. In Brazil,this is complicatedby variationsin seasonalpatterns among regions,as well as betweenBrazil and the rest of the world. The relativesize of a harvestalso affectsthe normal seasonal pattern. The prospectof a surplus at harvestforces a smallerthan usual percentageseasonal price rise,while the prospectof a poor crop increases returnsto stockholding.In both cases,greater trade flows - eitherwithin Brazilor internationally- would greatly reducethe need for stockholding while increasingthe efficiencyof agriculturalproduction and maeketing.

4.12 A case in point is soybeans. In North America,the normalcost of carryingstocks is reflectedin the evolution of futuresprices after the North Americanharvest. In other words, the marketpays for holdingthe stocksneeded for annual consumption. But the returnto carryingstocks ends when the new harvest nears, and the futuresprice 'inverts",which means it is no longerprofitable to hold stocks. BecauseBrazil's soybean harvestis earlier than the North American one, it generallyfaces an invertedworld market - one which offers no incentive to hold stocks. Ratherthe economic incentive is to export quickly and use the North Americanstocks as a reserve for subsequent Brazilianneeds. In fact, in 1985/86,CACEX (the foreigntrade agency of the Bank of Brazil)permitted the Braziliansoybean industry to take advantageof this seasonalpattern by exportingall production early and then arranging importsat attractive priceslater in the year. This reducedstorage requirements and, equally important,raised the net foreignexchange earnings by roughly152.

4.13 Past Braziliangovernments, like many other governments,have been concerned that excessive speculation helps destabilizedomestic food markets. One concern is that private sector stockholdingleads to "hoarding',defined as when stockholderscollectively withhold supplies to force up open marketprices, exacerbating inflationary pressures and leading to large profits. Somewhat different is the fear that physicalsupplies

15/ Helmberger(1984) in a study of the US soybeanmarket, for example, concludedthat price variancewithout storage was nearly three times as large as the with-storagecase. Sarris(1984) documented unambiguous effectson interyear price variability from the introductionof a futures market in the US, reducing the need for Government intervention. -35- will run out and force a food security emergency, either locallyor regionally(important given the difficultiesof transportwithin Brazil).

4.14 Concernsabout market manipulationthrough stockingreflect the fact of past market 'squeezes"where physicalsupply shortages fueled rapid price hikes. An example frequently cited was the 1983 Sao Paulomaize market,where prices rose over fivefold in a month. But as was well documentedin subsequentstudies, this price rise was the directresult of inappropriateGovernment interventions, not of privatemarket manipulation or a physicalshortage of stocks. In fact, experienceIndicates that most supplydisruptions have been caused by ill-consideredBrazilian Government actions. For example,fixing soy oil pricestoo low has inducedsuppliers to run down inventories.The resultingsupply shock was greaterthan would have occurred naturally due to the lack of buffer from privately-held stocks:subsequent price rises and political costs were far higherthan would have occurredif normalsupply and demandrelationships for stockshad been permittedto work themselvesout.

FuturesMarkets and Risk Management

4.15 Organizedfutures market trading is the institutionallink between non-speculativestockholding and the price stabilization,buffer stockand marketingobjectives discussed above. In a developedmarketing system, risk is managedthrough increasing market transparencyand througha commodity futuresmarket. Increased transparencyis achievedthrough an integrated systemof cash markets and good market informationsystems, which assist participantsin making decisionsbased on good knowledgeof supply,demand and price movements. Use of a futuresmarket allowsfarmers, traders and processorsto mitigatethe risksof stockholdingby hedging.

4.16 Vhat exactlyis a futuresmarket? At the outsetit is importantto emphasizethat futuresmarkets are not merely organizedcash markets. On the contrary,the greatbulk of total futurestransactions do not resultin physicalcommodities changing hands. Futuresinvolves trading standardized contractsthat specifysize, delivery locale,grade and time of expiration. They also involvea "clearinghouse"which collectsmargin payments to assure that all futurescontracts are honored. Agriculturalfutures markets are used by agribusinessesas a temporary substitute for cash market transactions. Hedging describes the most common rationale for using futuress an agribusinessis able to largely eliminate the risk that commodityprices will move adversely. In terms of stockholdingthis means that a firm holding inventoriesuses futures contracts to lock in a profitableprice for their sales a price that coversthe cost of purchasing, warehousingand capitalinvested in the stock. If futuresprices do not provide for profitable hedging of stocks, then the overall levelof inventories declines. In this way, the futures market providesthe mechanismfor establishingthe stockholdingsignals discussed above.

4.17 The existence of efficient and reliable futures marketsalso assistsstockholding by transformingspeculation on commodityprices--by privateinvestors or agribusinesses--intoa price stabilizingand value- addingactivity. This reflects the fact that speculatorsprovide market liquidityin futures that facilitateshedging by making it easierfor hedgersto buy or sell futures without moving prices. In fact, adequate speculativeparticipation in futures markets is essential to growthin -36- hedging. Speculatorshelp assurethat the relationshipbetween stockholding and futuresprices is maintained by 'arbitrage'trading. This means that they are preparedto buy physical stocksto make an assuredfutures profit- -whichalso keeps the supplyof stocksadequate.

4.18 The risk of extendingcredit for stockholdingis less when hedging is possible. In fact, US and WesternEuropean commercial bankers require hedgingbefore lending to agribusinesses,as unsuccessfulcommodity price speculationis the most commoncsuse of agribusinessbankruptcy in developed countries(and in Brazil as well). Requiring E:edgingwould bring major benefitsto Brazilin terms of increasedpossibilities of externallending for stockholding. Hedging opportunitiesalso stimulate investmentin stockholdingfacilities by reducingthe risks of being in the grain trading or processingbusiness. 16

4.19 The emergenceof liquidmarkets for hedgingforeign exchange risks in Brazilwould also help rationalizestockholding. This reflectsthe fact that exportablecommodities are sometimesused as an informal'hedge' (para. 4.07). As a result, stockholdingincentives often reflectforeign exchange uncertainty rather than the economic requirementsof holdingseasonal production or assuring adequate future supplies. This is why the -dvelopmentof liquidforeign exchange futures marketsis so importantto agriculturalcommodities.

4.20 Issues.Futures markets have a long historyin Brazil,although in recentyears, the domestic agriculturalmarkets becamelargely moribund. But becausethe economicneed for futures markettrading was strong,many agribusinesses(including cooperatives) became active users of international exchanges,leading to special foreign exchangeregulations. However, this has been a less than optimum situation, as there are severalfactors which currently limit access of Brazilians to overseas or domesticfutures tradings a) foreign exchange restrictionson overseasfutures trading in the CentralBank; b) inequitabletax treatmentfor domesticfutures trading; and c) uncertaintiesabout inflation, interestrates and the exchangerate, which may distortthe use of domesticfutures markets.

4.21 CentralBank restrictionson overseasfutures trading, imposed over fear of capitalflight and irresponsiblespeculation, is damagingto price stabilizationand ir.er.tivesfor stockholdingin Brazil. Yet developmentof a domesticfutures market is hampered by tax regulationsgoverning trading profits. Under existingregulations, profits derived from domesticfutures tradingare taxed, while profits from external futurestrading are not. Financialrisks are, in Brazil's current situation, as big a factorin determiningprice volatilityand stockholdingpatterns as are basic supply and demandfactors. Similarly, the exchange rate looms large in trading decisionsand affects stockholdingpatterns when commoditiesare used to hedge foreignexchange risks.

16/ For example,in the US, bulk grain siloswere inventedin the 18506, but becamecommon only after the emergenceof futuresmarkets permitted investorsto hedge their inventories. Similarly,the boom in private export elevators or soybean processing plants hinged on the availabilityof futuresmarkets to hedge stocks. -37-

4.22 Recommendations. Developmentof futures trading has also been studied by a Government working group under Ln. 2727-BR. tey recommendationsof this group includes

a) improveaccess to external futures markets,possibly through making foreign exchange available for hedging only to registeredcommission houses operating in Brazil (thehouses could assistthe CentralBank in policingthe systems,through detailedex post auditsand penalties);

b) develop a domestic futures markets, which will dependon changingexisting tax regulations;

c) introduce a liquid futures market in foreign exchangeto complementthe recentintroduction of an interestrate futures contract;

d) improve market integration through integratingthe grain exchanges, including national price reporting and stock informationnetworks;

e) improve market informationand statistics,and disseminate these more widely and regularly(para. 5.19).

B. Stock Financing

Issues

4.23 Lack of financingfor commoditystocks is a major constrainton the developmentof an efficient and reliablecommercial stockholding system in Brazil. The main problemsare the high real cost of short-termloans and the uncertaintyas to their availability(largely due to constantlychanging Governmentcredit policies). For grains,the major sourceof stock financing is currently Government financing programs, which have multiple problems (para.4.29). Producer stockholding is the most seriouscasualty of this creditconstraint. Rather than having easy access to commercialbank financeto hold stocks (either on-farm or at local grain elevators), Brazilianfarmers generally have no choice but to sell after harvest. This reflectsthe lack of stock credit,local storage(particularly on farm),and the need to repay Government loans. As a result,farmers have much less flexibilityin makingmarketing decisions,which reducesthe efficiencyof the Brazilianmarketing system and depressesfarm incomes.

4.24 Lack of credit has equally perverse effects for agribusiness. Becausepre-export credit is more readily availableand much less costly, the incentivesare skewed toward exportrather than domesticstockholding. For example,an agribusinessor cooperativewith an exportcontract can pre- sell the expectedforeign exchange receipts to financehis inventory(this is calledan ACC' transaction). In otherwords, the exportcontract, not the physicalinventory, is used as collateral for a loan with a dollar interestrate ratherthan a very much higherdomestic interest rate. Credit for domesticgrain or soybean stocking has thus eithercome from internal cash flow or from subsidized Government financingprograms (para. 4.25). Both sourcesare too limitedto satisfy potentialdemand, as well as being ,38- highlyvariable among years. Moreover, lack of a reliablestockholding credit systemis one of the major reasonswhy Braziliandomestic marketing costs are so much higher than those of its competitors,according to industrysources.

GovernmentFinancing Proarams

4.25 The main official program for stock financing is EGF (Federal GovernmentLoan Program). EGF is a programof subsidizedcredit offered to farmers,traders and processors as an inducement to hold stocks. The programis administeredby CFP, and togetherwith AGF (FederalGovernment BuyingProgram) form the basis of the Government'sMinimum Price Program. AGF is a guaranteeto purchase any quantity of outputat a minimumprice, indexedprior to harvest but not !.idexedduring the post-harvestperiod (thishas been changedin some years,including 1987, for some crops).

4.26 Apart from a subsidized interest rate, EGF carriesthe guarantee that farmersmay convertto the AGF programif the marketprice fallsbelow the minimumprice. In that case, the Governmentguarantees the minimum price,with indexing,plus the full cost of storageincurred between harvest and the time of liquidation.Participants have the choiceof signingup for EGF with an optionto convert to the AGF program (com opc&ode venda),a choiceessentially limited to producers and cooperatives,or withoutoption to convert(sem oycao de venda),the optionmainly used by tradersand agro- industry. EGF/AGFterms for major cropsare summarizedin the Statistical Appendix,Table 3.1.

4.27 The bulk of EGF financing goes to commercialfarmers, traders and processorsin the Center-Southstates (Table 3.2, StatisticalAppendix). In 1986, these statesreceived 93? of total EG? funds. Althoughthese states are major agriculturalproducers, an importantproportion of basic foodcrops (rice,maize and beans) are produced by farmers in the Northeast(para. 1.10). Only 7? of EGF funds went to this region,mainly for cotton, soybeansand other commercialcrops. Overall,the largestproportion of EGF funds are used to financesoybeans, cotton and rice.

4.28 Traditionally,the EGF programhas been the principalinstrument of the Government'sminimum price policy. Its subsidizedinterest rate has made it highlyattractive, and it has been designedto preventproduce from being sold to the Government under AGF. EGF was about 17X of all rural creditbetween 1982 and 1984. The levelof subsidyof EGF varies according to the nominalvs real interest rates; in 1982,however, the net cost of EGF to the Governmentand the commercialbanks was aboutUS$1.0 billion. At that time,EGF financed13? of the maize crop, 19? of the rice crop, 14? of the bean crop, 52? of the soybeancrop and less than 10 of all other crops. ActualGovernment purchases under the A(r. have averagedless than 2.2? of the maize crop,3.8? of beans,less than 1? of soybeansand 4.1? of rice in the period 1969-1981.However, in 1982,Government purchases rose to 15? of the maize crop,8X of rice, 3? of cotton and 34? of beans.Government purchaseswere also high for many grainsin 1987,but were reducedin 1988.

4.29 Issues. The two main issuesconcerning EG? are: a) is there really a need for Governmentinvolvement in marketingcredit; and b) if so, should it be subsidized.The questions are linked:in fact,the existenceof the subsidyis the main reasonfor the presenceof the Governmentin the market. -39-

Justificationfor EGP, apart from the subsidy,includes support for small farmersand price stabilization. The argument is that small farmersand those in remoteor disadvantagedregions (suchas the North and Northeast), are less able to securecommercial credit for marketingand are assumedto benefitfrom official credit. Yet these farmers receiveonly a minute portionof EGF funds.

4.30 Moreover,the existence of the EGF programactually constrains stock financingopportunities. As long as the subsidyremains, however, the very producers and traders who would be potential customers of commercialstock financingwill rely on EGF. But the significantcost of the subsidylimits the amountof resourcesthat the Governmentcan allocate to EGFIAGFeach year, thus further restrictingthe availabilityof stock financingand increasingits variability,since it is subjectto short-term fiscal decisions. Nevertheless,many cooperativesand processorsare dependentupon EGF, and the program cannotbe abolishedwithout an adequate replacement.

4.31 Nor has EGF, in combinationwith AGF, proveda viableprice support program. Real minimum price levels have fluctuated,and since1985 have exceededproduction costs and often market price levels, resultingin massive sales to Government. Management of public stocks has been difficult,and the result is usually large physicaland financiallosses, coupledwith disruptionof localmarkets. The high costs limit the amount of money which the Governmentcan pour into the programand thus its impact. Like EGF, most AGF funds go to the Centerand South,and to oilseeds.

Recommendations

4.32 In September1987, the Government establisheda systemof domestic market safeguardsin Brazil. These safeguards coveringmaize, rice and beans,restrict Government market interventionsto minimum and maximum triggerprices, based on historical market trend prices. On EGF, the ultimateobjective is -o replace the program with a systemof commercial stock financing,namely storagewarrants and bankers'acceptances, which is widelyused throughout the world. Key actionsinclude: i) establishing storagewarrants as financial instruments,together with the necessary regulationsand institutionalsupports; ii) in parallel,developing the oversightand supervisionrequired for market confidencein warrants;and iii) developing domestic futures markets to manage risks inherentin financingstocks (para. 4.15). Initial steps were takenwhen the Central Bank, in July 1988, issued regulationsgoverning bankers acceptances and storagewarrant financing.

4.33 Storagewarrants are certificatesguaranteeing the existenceof gradedagricultural commodities in bonded warehouses. They are always backedby insuranceand usuallyhedged on futuresmarkets. The key to their developmentis that they shouldbe credible to buyersand lendersin terms of qualityand quantity. Outsideinspection is thereforeindispensable, as is the involvementof some clearinghousemechanism set up by an independent authority(such as the Bolsa de Mercadorias de Sto Paulo),along with performancebonds coveringthe warehouse. -40-

4.34 Storagewarrants were previouslyused in Brazil,but have fallen into disusein recentyears, except for coffee. Coffeeis one examplewhere commercialbanks extend credit secured by coffee stocks (throughusing storagewarrants); as a result, the coffee storage system is far more efficientand reliable than the grain storage system. Becausecoffee qualitydifferences are so important, the storagewarrants system is based on individual bags which provide samples for inspection by the IBC, independentsurvey companies and the banks themselves(who actually receive a sampleof the coffeebeing financed).

4.35 Bankers' accentancesare essentiallymortgages on the bonded agriculturalcommodities. As a means of financingcrop storage,they offer the considerableadvantage that they are not bank loans, but traded securities.As such, they do not carry the risks, nor the costs,of conventionalloans. They do not affectbankers' reserve requirements, nor are they seen by internationalbanks as adding to their exposureto sovereignrisk. They are thereforehighly attractive to bankersand a cheap sourceof finance to traders and producers. The key to developinga bankers'acceptance market is to establish a set of regulationsin the CentralBank compatiblewith those governingthe internationalacceptance markets (basedin New York and regulated by the New York FederalReserve). If this were accomplished,a major part of the Brazilianstock of tradable commoditiescould be financed at interest rates below those of dollar- denominatedcertificates of deposit.

4.36 However,to make bankers'acceptances fully tradable,confidence in storage warrants must be bolstered through improving inspectionand licensingof rarehouses, and grading and classificationof commodities. Recommendationsto improvethese are in Chapters III (para.3.08) and V (para.5.19).

C. StoraaeCosts and Returnsto Investment

StorageInvestment Costs

4.37 Investmentcosts for grain storage range from the equivalentof US$20/mtstatic storage capacity to US$240/mt. This variationis due to differencesin scale,design, location and constructionmaterials. Limited storageinvestment over the past few years has made it difficultto obtain currentcost estimates, while Brazil's high inflation rate makes cost comparisonsdifficult between years. The limitedand sometimesconflicting informationavailable is summarizedin Annex V.

4.38 Thereare cleareconomies of scale in storageconstruction. Table 4.1 estimates normative storage constructioncosts in the South and Southeast: -41-

Table 4.1. LeoresentativeStorage Construction Costs oer Ton

Conventional Baggedor StaticStorage Flat Bulk CaDacitv (graneleiro) Silos (mt) (US$/mt) ('US$/mt)

1,000 90 140 5,000 75 132 10,000 65 125 15,000 59 120 20,000 56 117 25,000 55 116 30,000 54 115

Sources Missionestimates (1987 costs)

Within these totalcosts, the ratioof the cost of civilworks to the cost of equipmentis about 5545. Constructioncosts in other partsof the country, particularlyin the Center-West,are probably 10-202higher. FigureSD, Annex V graphs the relationshipbetween construction costs and scale.

4.39 Costs for smallon-farm stores are more difficultto obtain,in large part becauseof the very low demand for on-farmstorage in Brazil. Existingprojects have rangedfrom a batteryof metal silos,totaling 1,900 mt and costingabout US$75/mt, to simple silos of 150 mt constructedof brick and cement,with an estimatedcost of US$351mt.

OneratingCosts

4.40 Availableinformation on operatingcosts is also extremelylimited. Many publicand cooperativestorage companies do not keep cost data in a way that allowsreconstruction of actual operating costs for each cost center, while privatesector companies find this data sensitive. Table 4.2 compares storagecosts across three types of storage firmst a well-established nationalcooperative, two statestorage companiesand a privatesector firm in the Center-West. These data should be treated with caution:state storage company costs did not include depreciation (estimatedby the mission),and privatesector costs were based on projectedcosts for a new facility. -42-

Table 4.2 Comparisonof Cost Structure (Cz$/Mt) item Cooperative Stte CompanyI StateCoMOan IU (a) PrivateSIe .tr (b

,Z6c) x (c) x (CW) x (C) mn

Personnel 77.62 58.5 17.08 26.4 n". 68.54 89.92 17.4 Electricity 11.09 6.1 4.20 6.5 no. 8.21 6.46 2.6 Fuelwood 7.98 6.5 1.89 2.9 no. 0.06 6.92 8.0 Maintenance 5.49 3.6 1.85 2.0 no. 0.24 44.00 19.2 Depreciation 19.12 18.2 81.5 48.6 na. 10.86 86.00 88.8 Insurance 4.16 2.9 8.6 5.9 no. 1.40 29.09 12.7 Othor 19.09 13.1 4.24 8.6 no. 12.11 16.80 8.6

Total 142.20 100.0 64.54 100.00 no. 100.0 229.71 100.00

(a)1904 cost date (6)Basd on estimftedcosts tor newwarehoua. In MatoGrosso.

Based on these data, the privatesector spends less on personneland more on depreciation,maintenance and insurance. This is due to i) highly subsidizedinterest rates for cooperativesand state companies;ii) higher statutoryinsurance and bonding requirementsfor the privatesector; and iii) overemploymentin state companies.

Returnsto Investment

4.41 Analysisof returns to investment is difficult, given lack of consistentdata; however,it was possible to base estimateson projections given in projectfinancing proposals under the PRONAGRIproject. (Details are providedin Annex V.) Revenue estimatesshow that only a modest amount of revenuescome from storage(in this case, 182); most revenuecomes from associatedservices such as cleaning, dryingand insurance.Actual turnover of grainsis thus an important factor in profitability.Using a cash flow model (AnnexV), and based on "old' tariffs (in effectin January1986, beforethe ANAG-stimulatedprice increase, para. 4.49),an internalrate of return (IRE)of at least 171 is possible, or 39? under the new tariffs. These results are tentative, however, and more analysis of returnsto investmentneed to be done, based on actual cost data. The rate of return is highly sensitiveto assumptionsmade concerningactual stock turnover.

On-Farm Storage 4.42 Brazilhas one of the lowest on-farm storagerates amongmajor agriculturalproducers: only an estimated 3? of grain outputis storedat the farm level. Even this figure is an estimate,because statistics on farm-levelstorage are not disaggregatedfrom other storagestatistics. Reasonsgiven for low levels of investment are related both to crop productionpatterns and to incentivesfor on-farminvestment. -43-

4.43 Many of the major grain growing regionsin the South and Southeast originallyproduced coffee as the primary commercial crop. As coffee requiredprocessing, it was not stored on the farm. The introductionof commercialproduction of soybeansand wheat did not changethis bias toward off-farmstorage: wheat marketing was monopolizedby the Government(and thus there was no price advantage to on-farmstorage), and soybeanswere handledby a verticalmarketing and processingchain, and quicklyexported to take advantageof the North American off-season.The introductionof maize,which requiresdrying and has multiplemarketing chains, has changed this situation, and sparked new interest in on-farm storage. In the Northeast,most farmersstore on farm to meet subsistenceneeds, but not to take advantageof more favorableprices later in the year. In the Center- West, where storageand marketing infrastructureis scarce,on-farm storage would seem a more attractiveoption.

4.44 On-farmstorage investment has not been attractivefor several reasons: i) high seasonalityof use; ii) inadequate debt-servicing capacity,particularly for farmersin the frontierareas and the Northeast; iii) limited credit programs for on-farm storage (see Table 3.3); iv) concentrationof commercial bank investmentsin cooperatives,general warehousesand large farms,due to high risks;v) high real interestrates and the uncertain econo.nicclimate; and vi) more attractive rates in cooperativeswhich enjoy the benefits of economies of scale, higher turnover,and previouslysubsidized capital costs.

4.45 Nor have the benefits farmers perceivefrom storageconstruction been attractive. Farmers would opt to constructon-farm facilities for severalreasonss a) to lower transport costs at the peak harvestseason; b) to reduce drying and transport costs by drying and cleaningon-farm (reducingthe moistureof maize from 222 at harvesttime to the 142 standard used in Brazilwould reducetransport costs by 82); and c) to allow greater returnsby sellinglater in the year. The first two reasonsare more attractivein the Brazilian situation. With high inflationand uncertain Governmentpricing and market interventionpolicies, holding stocks entails a high level of risk to the farmer. Moreover,there is littlemarketing financeavailable for on-farmstocks. CFP discouragesthe use of on-farm storesunder the AGF/EGYprogram, and other collateralfinancing for on-farm stocksis nearlynon-existent. Most farmerscannot wait to sell their crop due to pressing cash needs. These factors underlinethe importanceof developingthe futuresmarkets and alternativestock financingopportunities discussedabove.

4.46 On-farmStorage Costs. With the existenceof cooperativeor other collectionstores, on-farm storage may not be economicallyattractive to farmers,due to economiesof scale and low publicsector tariffs. Table 4.3 comparesthe costs of storingcrops under three scenarios:construction of an on-farm storage facility; storage in the local cooperative;and storagein a generalwarehouse facility. (Detailson the modelsused are providedin Annex V, Tables5.F, 5.H and 5.1). -44-

Table 4.3 Comiarisonof StorageCosts (Cz$/mtfor 3 months)

1. StorageOnly SingleCrol (a) DoubleCroD (a)

On-farm PROINAPfinancing (b) 373 201 PRONAGRIfinancing (b) 389 208 Cooperative 197 207 ANAG warehouse 318 319

2. Storage.Transport Costs and Intereston Stocks

On-farm PROINAP 1,319 1,353 PRONAGRI 1,334 1,360 Cooperative 1,293 1,542 ANAG warehouse 1,413 1,655

(a) Singlecrop - maize;double crop - maize and soybeans. Doublecrop column shows per mt costs averagedbetween maize and soybeancrops.

(b) PROINAPterms are 6Z + monetary correction;PRONAGRI terms are 122 + monetarycorrection

Sources See Annex V, Tables5.F, S.H and 5.1.

For the farmer,the least cost solution considering storageonly, for a singlecrop, was the local cooperative;this was 432 cheaperthan on-farm storage. Storage in a public warehouse facility was about 30Z more expensivethan the cooperative (Cz$3181mt),and on-farm storagenearly doublethe cooperativecosts. With interest and transportcharges taken into account, on-farm storage was nearly as attractive as cooperative storageand cheaperthan a public warehousefor singlecropping. However, for doublecrops, such as soybeans and maize, on-farmstorage was cheaper than both cooperativesand publicwarehouses. Thus, on-farmstorage appears only to be attractive under certain conditions:double cropping, lack of cooperativefacilities, high transportcosts, and transportdifficulties.

4.47 This analysisdoes not consider the economicbenefits of on-farm storagebuilt for farm consumptionof grains. This consumptioncould be either subsistenceconsumption for the farm family,or feed consumptionfor livestock. It appears that many farmers build on-farmstores for these reasons,and the costs are consideredto be part of farm overhead. -45-

D. StoraisTariffs

TariffPolicy

4.48 Until recently,the FederalGovernment regulated only public sector storagetariffs. CIBRAZEM rates were establishedon a country-widebasis, regardlessof actualunit costs. CIBRAZEMrates have become,however, a de facto benchmarkfor the industry, in part becauseCPP and other Government agencieshave used these as a referencefor negotiatingrates with storage providers. Thus, although state storage companies set their own rates, these were usually close to CIBRAZEH rates as these companiesenjoy advantagesof highly subsidized capital. Private sector tariffswere establishedby individualstorage companies, but were subjectto scrutinyby the local CommercialCouncil. Private sectortariffs were usuallyhigher, mainly becausethe publiccompanies sought mainly to cover operatingcosts and did not charge for capital and depreciation.Cooperatives were also free to establishtheir own rates, althoughthese rateswere usuallycloser to public sectorinstitutions. Cooperatives also do not chargedirectly for capitaland depreciation,but rather assessa certainpercentage (1-3X) for "socialcapital", which is treatedas sharesin the cooperative.

4.49 Under the Plan Cruzadoin 1986, storagetariffs, like other prices, were frozenfor both public and private sector alike. The price freeze resultedin a severe financial strain on many public and privatesector companies,which were just gettingready to adjustrates for the 1986 crop season. Once price controls were removed early in 1987, both publicand private companies raised tariffs substantially. However, the private generalwarehouses, supported by a new national trade associationfor generalwarehouses, ANAG (para. 2.12),substantially increased rates across the board, in some categories by 3002 over February1986 levels. Through the effortsof ANAG, the general warehouse industry for the first time establishedrates on a nationalbasis, based on rates for the highestcost area, the Center-West. However, the Government has insistedthat these rates are subjectto approval by CIP, the price settingagency. While allowingthe rates to go into effect temporarily,the Ministryof Finance has commissioneda study of storagecosts as a basis for tariffsetting.

4.50 CurrentGovernment policy on tariff settingremains unclear. Some interest groups are promoting setting panterritorialtariffs for both privateand publiccompanies. The argument is that this would help control inflation,improve supervision of the industry,and preventprice-gouging where competitionis limited. Others are promotingregional, or state-wide rates,again regulatedby the Federal or state governments.The move toward tariff-settingmay also have been encouraged by significantjumps and unificationof privatesector storage rates, under the aegis of ANAG, and by the cost implicationsof higher tariffs for Governmentagencies renting privateand cooperativestorage space.

4.51 The legal basis for Government supervisionof rates is also unclear,as Lei 1102 (para. 3.03) clearlystates that individualcompanies can set their own tariffschedules, as long as they are publiclygazetted. More importantly,however, in a countryas large and diverseas Brazil,with vastly different storage conditions, needs, and constructioncosts, -46- regulationof storage tariffs is an impossible task, with a potentially constricting impact on new storage investment by general warehouse companies. In addition,Brazil's high inflationrate and lags in adjusting rateswould lead to increased uncertainty and potentiallosses for storage companies.

TariffLevels

4.52 There are as many different tariffs for storage and related servicesin Brazilas there are storage-relatedorganizations. Table 4.4 summarizestariffs for the most importantservices offered by major storage providersin the publicand privatesectors; other tariffsare summarizedin Annex V. The tariffshave been comparedto those of CIBRAZEMwhich are used as a benchmark. With the exception of CEAGESP'srates, all other charges are well above CIBRAZEM's.

4.53 Adequatestorage tariffs are an importantincentive for encouraging privateinvestment in storage facilities. Privatesector companies have complained that public tariff policy has acted to drive down rates, particularlyin the competitionfor businessfrom Governmentdepositors, in cooperatives,and in the frontier areas. Moreover,they argue,the public sectorhas benefitted from cheap investment credit, reducing the most sizeablecost componentof storageoperations. It is true that CIBRAZEMand many state companiesdo not take depreciationcosts into accountin setting tariffs,while cooperativesoften recover financial costs throughsocial capitalcharges. In contrast, private sector companiesmust assessfull capitaland depreciationcharges, which in addition are often based on marketor at least unsubsidized interestrates. Nor are unrealisticallylow public sectortariffs viable: these requirepublic subsidies and introduce distortionsboth in tariff setting and in competition,as publicagencies preferto store in publicwarehouses at subsidizedrates.

4.54 Governmentconcern with the impact of tarifflevels on producers are unfounded. Storage costs remain a modest part of total production costs,on average only 10-152 including drying and cleaning.Of greater importanceto many farmersis the cost of transportingproduction. At peak season,transport costs may equal Cz$320 per mt, greaterthan cleaning, dryingand storagecosts at a cooperative(Table 4.3).

4.55 Public sector companies lose money through low tariffrates, compoundedby their inefficiency. Public sectorstorage tariffs have not kept pace with costs in the rest of the economy. For example,CIBRAZEM's rates have increasedby over 27,000 since 1979, laggingbehind increasesin the consumerprice index (whichrose by about 39,0002in the same period), the generalprice index (81,0002) and the cost of energy (129,000X)(Table 4.5). As energy and personnel costs make up the bulk of CIBRAZEH's operatingcosts, CIBRAZEM's losses have increased. BRAZIL AGRICULTURALSTORAGE AND MARKETINGREVIEW Selected Storage Tariffs for Grains

5) 6) 7) 8) MAI= COST mMS CI3RAZEN MATTO GP S60 COPASA CEACESP ANAC values e of CIBR. values S of CIBR. values t of CITB. values S of CIBR. 6.667S Weigbing 0.15 1.30 865 1.63 1.089S no charge 01 10.00 9) Cleaning 1) 8.89 24.09 271S 11.53 130S 5.80 651 60.38 6791 1721 Drying 2) 48.01 65.19 1361 58.87 123S 54.91 114S 82.41 Storage/month 3) 14.18 8.77 621 20.82 1472 8.97 63S 26.67 1881 Unloading 3.60 18.63 518S 5.15 1431 day rate O0 25.00 6941 6842 Loading 4.68 18.63 3981 5.15 1101 day rate 01 32.00 2981 Fumigation 7.31 12.27 1681 15.88 2171 22.00 3012 21.80 Labor day rate 25.39 day rate day rate day rate Insurancelmontb no quote .3Z ad.v. no quote no quote 3241 mat. vsndl. 6.80 4) 11.46 1691 5.66 831 6.26 921 22.00 156S Ventilation 0.18 0.19 1062 no quote 01 0.15 831 0.28

I) Up to 51 of impurities. 2) Depends on product and on humidity upon arrival; figures here are for corn with a ma. of 16S bumidity. 3) Has an ad valorem element; e.g. total cost for CIBRAZEN is CrS.4.22 + (0.15O of the product's va e in Cr$./ton) for two weeks of storage. Costs listed bere are for corn and for I month of storage. 4) Portuguese: "transilagem" - in-store movement of product to prevent beat build up. 5) As charged by members of the General Warehousing Association of Matto Grosso. unchanged since Jan. 1986, and as e.g. applied in the Cuiabasa case study. 6) The state storage company of Parand. 7) The state storage company of Sao Paulo 8) The national association of general warebouse owners; tariffs proposed to go into effect on 5/30/1987. 9) Assuming an average of 15 tons per truck; the stated rate is Cr$.lo/truck.

Sources: Tariff Bulletins of respective organizations. -48-

Table 4.5 CIBRAZEMRate IncreasesSince 1979

ACCUMULATED 1986 INCREASE INDEX INCREASE SINCE 1979

CIBRAZEHTariffs 87? 27,5572 IGP 651 80,856? IPC 64X 39,2071 Energy 1982 129,005? Fuel 132Z 145,558Z ORTN 51X 33,420Z

SourcesCIBRAZEM

Recommendations

4.56 Tariffs are a key incentive for investment in storage and Governmentpolicy in this area requiresclarification and furtherreview. There is no case for uniformnational tariffs, which would be impossibleto establishand enforce. Instead,the Governmentshould focus on the factors affecting storage efficiency, including inappropriate Government interventionsand high investment costs. The following elementsof a storagetariff policy are recommendeds

a) storagetariffs should be freely set by storageproviders, subjectto the legal requirementsfor postingtariffs, and not subjectto federalor state control,or unifiedon a national basis;

b) in the short term, storagetariffs in the public sectorshould be based on actual costs, includingcapital and depreciation costs;this would assist in reducingpublic company deZicits, and also would introducemore equal competitionfor Government storagebusiness; in the long term, our recommendationis that Governmentdivest itself of its storagecompanies (para. 3.29); c) Governmentconcerns over price gougingand lack of competition shouldfocus on improving the quality of storageservices throughbetter supervision, incentives, and licensing.

CHAPTERV. RELATEDMARKETING ISSUES

A. Transport

5.01 Brazil's transport infrastructure is heavily concentrated in the coastalstates, particularly in the South and Southeastof the country. Map 20449 and Map 20442 show Brazil'shighway and rail transportnetworks. -49-

This concentrationof infrastructurereflects the traditionaldensity of populationand productionactivities in these regionsand the relatively recentopening up of the interior, particularlythe Center-Westand the Amazon regions. Most of Brazil's grain crop is transportedby truck. Grainshave comprisedonly a limited proportion of total goods moved by rail about 6 millionmt in 1984, or 61 of total rail traffic. Only about 15? of the grain crop is moved by rail, despite the fact that rail infrastructureis concentratedwithin the primarygrain producingregions (exceptfor the Center-West).Brazil's waterways have not been developedas low-cost transport links, in part due to geographicaland physical problems.

TransportIssues

5.02 Transportissues center around the need to developadequate low- cost transport facilities for low-value commodities such as grains. Transportcosts in Brazil are significantlyhigher than in other major grain-producingcountries, due to a combinationof limitedinfrastructure, lack of low-costalternatives to truck transport,low efficiency,and long distances. For example,it costs the equivalent of US$40 to move a mt of soybeansfrom Mato Grossoto Paranagua for shipmentto Europe,compared to only US$4.50/mtto move soybeanswithin the US to Gulf ports by river (US$ 7/mt by train)and only US$9/mt to ship soybeansfrom Paranaguato Rotterdam. A USDA study comparing US and Brazilianproduction costs of soybeansconcluded that Brazilian producers face much higher (up to 90? greater)transport, storage and handlingcosts than do Americanproducers. 17 Transportcosts are also important in farm-level decisionsto marketor store grains (para.4.04).

5.03 Lack of adeauatetransport infrastructure is a criticalproblem in the agriculturalfrontier areas, particularlyas these areas are well removed from major consumptionand export centers. Developmentof transportsystems will be a major factor in the abilityof these statesto continueto compete in domestic and internationalmarkets. In surplus years like 1987, the Governmentpurchases nearly all the maize and soybeans in many Center-Weststates, because transportcosts wipe out any advantage of selling elsewhere. Although the Center-West is servedby several railway corridors, the bulir of grain production from this area is transportedby truck to the agro-industrialcenters near Sao Paulo and Ponta Grossa (Parana),and to ports for shipmentto other regionsof Brazil or abroad. Distancescan total over 1,000km. Lack of infrastructurealso increases transport costs.

5.04 One major constrainthas been the inability of the railwaysto operatecompetitive railway services in the Southeastcorridors which link the Center-Westregion to the processing,consumption and exportcenters. Major problemsinclude: a) poor condition of the railroads'tracks and motive power; b) inadequate management of railway operations;c) ineffectivenessof the railwaysin assessingand meetingcustomers' actual

171 See IBRD, BrazilsA Review of AgriculturalPolicies (Vashington, DCs The World Bank, 1983),p. 83). Clearly,internal transport costs have an important impact on Brazil's ability to maintaininternational competitivenessin world markets. -50- transportationneeds; and d) poor intermodal services (transportand storage)provided by parastatals.

5.05 The inadequacyof the railroadsis compoundedby the inadequacyof truckingservices even in normal crop years. The gap betweensupply and demandfor trucks for the agriculturalsector is estimatedat 150,000 vehicles. This appears to have been partly due to limitedcredit availabilityin the past and, after the CruzadoPlan in 1986, the inability of manufacturersto keep up with demand for new investment,including problemsin obtainingcomponents. Frozen transport rates under the Cruzado Plan discoaragedsome truckingfirms from handlinglow-cost bulky commodity such as grains. Moreover, trucking has a highly seasonabledemand in Brazil,and individualtruck operators move aroundthe country(and also into Paraguay)to provide trucking services whereverthe returnsare the greatest. 5.06 Transportcosts have a major impacton storagelocation. Research by the Ministryof Transportl8 has shown that locationof collectionlevel storesnearer to producersin most cases is more efficient(if transport costs are included) than achieving economies of scale in storage constructioncosts through larger intermediate-levelstores. Significant improvementsin transportand storage efficiencycould be achievedthrough betterlocation of intermediateand transitstores. In many cases, transit servicesare providedby state storage companies or other agencies,and storagelocation may have had more to do with politicalpressures than actualneeds and efficiency.

Recommendations

5.07 Developmentof low-cost transport infrastructureis obviouslya pressingneed in Brazil. While detailedrecommendations on the transport systemare beyond the scope of this review,several observations can be made. First,there is a need to examineways to bring down transportcosts for bulky commoditiessuch as grains. This may mean more efficientrail services,exploration of the possibilitiesof developingwater transport, and better integrationof road networks with major producingareas. This will be importantfor Brazilto increase marketingefficiency. But it is also necessary that specific attention be directed towardthe primary producing areas as a priority, rather than continuallypushing the agriculturalfrontier back through constructionof more roads in these areas. Second,storage construction can assistin improvingtransport and handlingcosts, through providing adequate facilitiesclose to producers (includingon-farm facilities)and by allowing efficient assemblyand movementof commoditiesfrom producerto consumeror port.

18, Monteressoet.al. (1985); Federative Republic of Brazil,Ministry of Transportation,GRIPOT (1982) -51-

B. Classificationand Grading

Lexal and InstitutionalFramework

5.08 Classificationand grading of agriculturalproduce play an importantrole in agriculturalmarketing through assuring product standards and quality.Product grading providesiusut nce, protectionand guarantees in commoditytransactions, and also serves as an importantreference both for price settingand for financing of stored goods. Ownersof stocks, both producersand bankersholding storage warrants,want to be assuredof productquality (which in turn determinesproduct value).

5.09 Commoditygrading regulations are summarizedin FederalLaw 6.305 (1975) which establishes standards and classificationfor domestic commodities.This law also delegatesdomestic classification services (but not settingstandards) to the states, under the overallsupervision of the FederalGovernment. Specificstandards for gradingexport commodities were publishedin 1966, and are the responsibilityof CONCEX (NationalCouncil for ExternalCommerce).

5.10 SNAP in the Ministryof Agriculturehas the overallresponsibility for classificationand grading at the federal level,while provisionof actual public classificationservices is the responsibilityof state governments and other Government agencies. In most cases, state governmentssign convenios(contracts) with parastatalor privateagencies to carry out these services. For export crops in particular,private classificationfirms are widely used. There are a total of 26 agencies providingclassification services and 600 classificationposts throughout the country. Standardsare set by the Secretariatof AuxiliaryMarketing Services(SESAC) under SNAB, and determinedby the NationalCommission for TechnicalNorms and Standards and the state Commissions for Norms and Standards(CENPs), on the basis of researchand studies. SNAB carriesout an inspectionand supervisoryrole through its Departmentof Inspection, Standardization and Classification (DIPAC). SNAB supervises the classificationsystem in part through classificationcertificates which accompany commodity transactions. These certificates,together with samplesof commoditylots, are supposedto assureproduct quality.

ClassificationIssues

5.11 Lack of a trustworthyand easily available systemof product classification,based on nationalstandards, is an impedimentto commodity marketingand storage financing. In Brazil, many state classification systemshave provedto be weak, and classificationcertificates less than trustworthy.In general,the southernstates of Parana,Rio Grandedo Sul, Santa Catarinaand Minas Geraishave the best publicsystems. But overall, the level of productgrading by public agenciesis unimpressive.By and large,grains are tested only for humidity and extraneousmatter upon receipt in warehouses, and are not classified according to quality standards. Therefore,private classification services are commonand often used. -52-

5.12 Reasonsfor poor publicclassification services have includedta) lack of overallmonitoring and supervisionby the Ministryof Agriculture; b) lack of funding for classificationservices from hard-pressedstate treasuries(fees from classificationusually revertto the state treasury, ratherthan to the service although the law statesthat classification servicesshould be self-funding);c) no audit or inspectionof fees by the Ministryof Agriculture;d) because of low funding,problems in staffing, technicallevels, infrastructure and equipment. In addition,current laws discouragethe use of classificationsystems, and preventadequate recourse in the event of disputes. Currentstandards for severalcommodities (rice, beans,maize and groundnuts)are archaicand need to be reviewed.

Recommendations

5.13 Under Loan 2727-BR, a Government working group has proposed severalsteps to be taken to improve the classificationand grading systems:

a) reviewcurrent standards and grades for domesticallytraded commodities,with a view towardsmodernizing, simplifying, and to the extent possible, aligning them with gradesused in internationalmarkets;

b) strengthen state classification systems through improved funding (raising classificationfees to operateself-funding systemand allowing retention of fees to financeservices), trainingand equipment;

c) allow licensed warehouses (includingcooperative warehouses) to perform classificationservices and issue classification certificates;

d) review classification legislation to encourage greater remediesfor users in the event of disagreementsover product quality;and

e) introducegreater quality contro. through the federalMinistry of Agriculture.

The working g.oup has also recommendedthat implementationof these recommendationsbegin under a pilot projectin Parana,where classification servicesare consideredto be good. But to meet pressingrequirements of betterclassification services to support stock finacing,Brazil should encouragethe use of privateclassification companies.

C. Market Information

5.14 Agriculturalmarketing in Brazilis furtherconstrained by a lack of market information,which decreases market transparencyand affects decisionmaking. No single Brazilianagency is responsiblefor collecting agriculturalinformation; rather, different (and sometimes similar) statisticsare gatheredby a wide numberof agencies. These are summarized in Table 5.1, StatisticalAppendix. The major agenciesare IBGE which -53- collectsmainly productionand storage data; FGV, responsiblefor tracking consumerand producer price movements; CFP, which collectsmarket data mainly for its own use; and CIBRAZEM, which periodicallycollects informationon the storagesubsector.

Issues

5.15 The multiplicityof institutionsgathering agriculturaland economicstatistics have led to problems of coordination.Key issuesare a) inconsistentstatistics issued by two or more agencies; b) weak statisticalcollection and analysis methods in some areas;c) irregular data collection; d) lack of considerationof users' data needs and requirements;e) poor diffusion of data, includingnonpublication of some basic information;and f) lags in releaseof basic statistics.

5.16 In particular,a rapid and flexiblemethod of crop forecastingis needed to improveprice setting and storage decisions. Presently,INPE (BrazilianInstitute of Space Research) is developingmethods to forecast crop production through remote sensing. Together with IBGE, INPE is launchingtwo projects to expand this methodology, first with a pilot operationin Parana,and then wider coverageof the major grain producing areas in the South. IBGE is also evaluating its systemof crop data collectionto improvecoverage, methodology, and needs.

5.17 Stockdata is producedby three separate agencies. Not only is there considerableoverlap, but also storage data often is inconsistent. In 1975, CIBRAZEMcarried out its first surveyof storagefacilities, which in later years has been used as a basis for estimatesof storagecapacity. This cadastreis now being updated, with a view to making it a regular responsibilityof CIBRAZEM. In 1985, IBGE suspendedits own storageand stock level surveys to re-examine statisticalmethods and information needs. IBGE plans to continuethe surveyafter 1987,with more emphasison reportingstocks for major comuodities. (It is noteworthy,however, that for variousreasons IBGE and CIBRAZEM estimatesof storagecapacity do not agree;see Annex III). CPP also collectsinformation on stocks,but mainly for internalpurposes in the administrationof the minimumprice program; CFP stock informationis not circulatedwidely.

5.18 There are two major problemsof data compatibility:first, data is not releasedon a regularand timelybasis, and second,data releasedfrom differentagencies is inconsistent.Due to the lack of singleinstitution responsible for agriculturalstatistics and the multiplicityof time schedulesand needs for which data is collected,data disseminationis haphazard:data is releasedlate, at irregularintervals and sometimesin unusableform. In contrast,in more developedand sophisticatedmarkets in Europeand Japan,timely announcement of crop forecasts,price trends,and Governmentand private stock estimates assists tradersand producersto make informeddecisions on markettransactions and stockholding.

Recommendations

5.19 Under the Creditand Marketing ReformProject (Ln. 2727-BR),the Governmenthas establisheda working group to developrecommendations to improvecrop forecastingand stock information.Major recommendationsof this group ares -54-

a) to nominateIBGE as the institutecoordinating the collection of agriculturalstatistics;

b) to establishan interinstitutionalcommission with membership of the major bodies providing agriculturalstatistics; the purpose of this commission would be to ensure data consistency, regular release of data, and improvementof methodology;

c) to improve data disseminationthrough establishmentof an automateddata base, regular release of standardstatistics and indicators,expanded reviews, reportsand bulletins,and more market researchinto needs for regulardata.

5.20 These recommendationsbegin to address the basic problems,but considerationshould also be given to eliminatingthe considerableoverlap on data collection and to concentrateon improving institutional capabilitiesto providedata. For example, on stock data, it is not clear that CIBRAZEM - essentially a technical institutionproviding storage services- has the capacityto provideaccurate and timelydata on stocks. Ratherthan multiple institutionsall collecting an incompleterange of data poorly,it would be more cost efficientto clarifyresponsibilities and strengthenthe capacity of fewer institutions. Key actionsares a) decisionson the scope of informationto be collected(which should be done in consultationwith data users);b) reviewof methodologyfor analysis;c) establishingregular schedules and channels for data release; and d) improvingstaffing, training, and equipment. AaIaNAL SmE A) M mwE

9Sssey of Policy Issues and Proposals for te Action

PRc PededGoernet Conmmetsand Policy Isa Critical Probles and Cowtradnts Obdectiwes and Targe Poposed Actim for Reform eNxTrn Ferspectivs

I. STORAGEINFRASTRUCTURE

1. CtC&ny - t storage deficit of Stimulate private sctor 1. a) Introdu eting and Key goal 1- to stimulate private 10 idllion mt. stodiolding and sorage torage fom prtgram to sectr stDdOoldIi and wq)rJ - Shortag of b1k facilities in investment at ali levels Ourudu: rem camtraints to participatim of private unjor grain producing statee. (i) inentives for stociholdirg stodIuoldirg ard i nestient: i_vesuit in storage - Critica capaity shortages In (see III.1); (ii) decreasse elemets are aesarized in infrst:ructure. NE, North, frontier areas. Govertwumtinterventim and this matrx. - Stagoatix of storage , inclulirg divestment b) Epend credit availability investent. of state storge ies (see for stora. 11.4); (iii) deregulatim of tariffs (IlI.l); (iv) aeaxammts to lqael fraunaerk (11.1).

2. Ot-Faim S avery - low level of on-farm nEwta a qsio of on-farm 2. a) Develop means of collateral 0&-farm storage is an iuportat stora (oly cf total storage throt* Iproving finanin for ao-farm stocks a-rpirnt of market develo_ ent, capacity) ad procer incetives (price stabilizatimn, (111.2). with significnt ptnaal to stocluoldirg. rlsk reduction, stock firarcing; b) Provide oqortunities for assist in price stabilizatim - Limited availability of cnrit see 111.1), expanding research risk reduction durou hedging throim proxuer stocluolding, for on-farm iwestments, and ard tedinical support, and (see 111.2); and to Iprove farm inemes. difficulty in cxpeting with stimulating credit availsbility. c) Esurage vesbnI crit susidzed OOPeraves. 1hrot# an untied gseral lin -1igi riss and lack of of credit to agriculture; irxrnntives for stodtkoldirg. d) Improve researd and - lAmited stock financing. tedmholy develoient and diffusion wdth a focus o mas faner store problems;

3. Tedmhical Issums - Lack of terhnical standards fcr Ep d support for tedcniml 3. a) l_cease trainin Govwrnmentcould play an construction. training andresearch, to build opporturities ad prxogors; imgrtn t role in researdh ad - Limited storm researdh, solid foundation of teshnical b) Provide Increased support extesmion, anddiffusion of espectally on economicand knowledge and persomnnl. and incentives for tedhnical information, as wll as umail-farmer issues. Establiih tedhnical standards. storage-related researdi by training. - Limited availability of trained both publicand private stora tedunicirns. sectors; - 9hortages of anuifacturing aid c) Improve storage etnsion omstrutton capaity to expand and links to research; storage infrastrte in short d) Establidh technical term. for storage construction. 1FuacmmdledGDvsrmmt ( Matd Poitcy loom C(itLcal Probles ad Contraints ojectives ad Thrgets aposed ktims fo Refom lqwTem PNrspectiie

It. CN_T FOLICI1LSA tM1

1. W _ t - Relati.ely *eak ad Provide adequate leal fraewrk 1. a) G GMalWardkoue lw Central objective is to e U _~oordIzstaSqervian ad to eco e developt of (lai 1102) or introduce now piblic oafideio In tmrdotue lted smsctia for pubc private secto Swral iwrivaue reglatiam to: operatls, as a bads for aems eral _wrivane. ad stock finaniz dille - allow waeduses to encaouragin use of iarant to - Pvchilition of u.kouse provvdht adequt protectice to in trading ad procesng; firwne stocs. A private cames' Izzvelnt in wers. - iqrose suervIsim ad Industry ra r agecu proc ests or sdetig. liaU irng; hel provide this oerslt. - limited tehnIcal and iAu_ce - ixtrmfue 2-esr Umses -IIS- ard obliptory imea; b) Establigh etasive b gding ytens; c) Clarify relattog hutituts wevh e aquvsis ad polcy; d) Strengru supervisfrn aid fines; e) liproe classificatim sysatm ad enforce stariads, to reduce frad.

2. StP- LciIS Ca eunsicm of (4ective of storae policy 2. a) Revise storaw policy to storg if =rrastzuctunewithi shold be to provide a frnmwrk emutrateor. iproved e little attenit to Of iscmtites (incl1din ze'uring lnves'I and stoc:ioldbng stodkoldng aid investt exdsting didncktiwes and incentives; inoaties. aspropriateregulatio) to b) Ruce role of pblic - Qutima and poorly defired agnoe private sector sector (see I1.4). major role of piblic sector. imesbn-t and stOdholding. - F-dve Gerit Rele of pblic sector iwuld be interventim In pridr, reduced ad limited to defiidrg t ad stor-g servi. ulmesof the S. - Wiuction of stra inesb:ut reor to pibic caqpzdes. - Relative Wgl of Ma scale and c-fam storage in Gweruat propms.

3. Seurity Stxx (sG i t pans to establiuh Achieve food sarity hrom*i 3. a) Dealop daestic stock Price stabiizatime ad dstic sbstnti security stoud, relying m rternational mrkets policy, ilding plas to food seauwty also ans widt potetial izpt on price for umforeseei food deficits cape widt basic grain related griacltulal Podre ad stabIlzatirz, dtic ile e raging dmtic ortfall a surpluses no irtives, establid.it of markets, and blget. stodholding in the private large security stocs; iratructure (transport, - Paor coordinatic and sector. b) Desn4t ao y to stoagen), Iret- nfoatim ad _-,Nq-pm-ktof odstt nl Enccura tic price Z lerznut stocks and tated aemaptin pSr for GtVerfMSftstocks. stability throt* developit of itute cle rules for lonst ne group. - Se of Nermat stocks futures markets, callatel handling. beao xm Fpram disrupt fvucing and free trak. daestic waxirts. - Pl to expom piblic sector storap inratncture to store security stocks. s~~~~~~I * g~~~~~~~~~~~~iI . iiI0~ ~ F

[|i ji}3ii4| t}it5ti fiji~~~~ Gowsns and Policy issms Critical Problm ad Oxutrairts Oblectives ad Targets Proposed Actii for 1fes Lore-Tam Potepoctiw

3. Storage Tariffs - Gnuet actol of storage Tariffs diotld be frwly set by 3.a) AUlw storge taffs to be tariffs a disrnwotve to storw provdes. Public sector set freely. invesamuet. tariffs hould1be lncreasd to b) Insease pblic secr - Uelistically low public warket levels. cawdses' tariffs to muiret sector tariffs require public levels. subsidies and distort competition. - Panterrittoral tariffs intr(itiLu- istortions.

IV. RELATEDMARKETING ISSUES t. Clasification ad - Poor publir classificatin ad improve classification ard 1. a) Ibvlew acrmt stadards laV-term objecie iikldd be to Grai 8ngralig servis, resultng in graUrg to provide trnmthy and grades to mderni, develp ad e clastfication limited cofidene in tihe services as a basis for tuse of simplify and aign witi servies widt qualtly mtrwl by systems storep warrants aid increased internatiel grades; fedeMralg ternmmt.Tlusw&ty - Liited recognition for quality marlaet trsparency. Encoura b) Mke state clsafication classification ad grading is in grading; arduaic stawards. private classification servis. syst self-fdirw; essati for storage nts. - Lack of adqate umitortrg aid c) Allaw liceAsed warouses supervision by Ministry of to issue classifICation Agrliture. certificates; - tak of fumln. d) Introduce better quality - Problm In staffing, techrical cmtrol d mrs Mnistryl of ampetce ad eqAt.ilture; - legal syst doe not afford e) bviw classficatin adeqte protetion for Usr. legislation to e eiw fair remmies for useres.

2. ?Krkat infonatton - tltiple izutitutiais collect Duq,oe collection ad diffusiom 2. a) NmtnateIR as t eeowst of triet infrsti statisticS, ds not coordinate. of Undet informtion to iprove crdinet of agrieulral system Is a ke ap] t to - Incmsistent statistics issud rket traparency and assist in statistics; rnmt st aW i.nltig by two or moreagencies. decisi'on uIdg. b) cide spe of information objectives as availablity of - WICkstatistical collection aEd to be collected and lddh tirly and acrate m ist aulysis medtois in mm areas. institutiaw should collect; inforati is io It for - Irregular data collection. c) Strgthen cthodology and decisim ming on sellig and - lack of comideration of tuers' analysis ard iqove staffing, stodholding. data seeds md reqiremets. training ad eqiprent; - Poor diffusion of data, d) Establidh ammdasimato inclaliag onoiblcation of esre data oonsistaxny and as informtion. adequate statistical - les in elease of basic efodoli; statistics. e) Establish regular schedule - lb rapd and fledble =edod of ad dius for data reale, crop focsting. ad bradem dlssemlnatim. -59-

BRAZIL AGRICULTURALSTORAGE AND MARRUTINGREVIEW

Bibliograthy

Bigman,David. "TradeStrategies of Stabilizationin AgriculturealPrimary Products.* In Yaron,D. and Tapiero,C. (ed.)ODerations Research in Aariculture and Water Resources.Amsterdam: North Holland Publishing Co., 1980. Brennan,Michael J. 'The Supplyof Storage."The AmericanEconomic Review, pp. 50-72. Donaldson,Graham. 'FoodSecurity and the Role of the GrainTrade." AmericanJournal of AiriculturalEconomics, 66s188-193 (1984). Falcon,Walter P. 'RecentFood PolicyLessons from Developing Countries.' American Journalof AzriculturalEconomics, 66180-185 (1984). FederativeRepublic of Brazil(1987a). Empr6stimoSectorial II. Grupo I. Liberalizaclodo Comerciocom Salvazuardas.Final Report, February 1987. FederativeRepublic of Brazil(1987b). EmprestimoSetorial II. GrupoV. PrevisSode safrase InformacCesde Estoaues. FinalReport, February 1987. FederativeRepublic of Brazil. SEPLAN. Plano de Metas.Ac8es Para a Exsans8oe Desenvolvimentodo Sistema Nacionalde Armazenapem,1986187. Brasilia.Mimeo.

FederativeRepublic of Brazil. Ministryof Agriculture.Companhia Brasileirade Armazenamento(CIBRAZEM). Ministry of Agriculture.Piano de DesenvolvimentoPara o SistemaNacional de ArmazenazenTriOno 87/89. Brasilia:1986. FederativeRepublic of Brazil.Ministry of Agriculture(Brazil). ProDostade Politicade Abastecimento.Brasiilia: 1987. Mimeo.

FederativeRepublic of Brazil.Ministry of Agriculture(Brazil). Anais do Simp6siosobre Commercializacgo de Graos e Deirivados. Organizacgoe ApilizacAode Sistemas.Brasilia2 February 1985. FederativeRepublic of Brazil.SEPLAN. IBGE. (InstitutoBrasileiro de Geografiae Estatistica.(1987). 'Projetopara a Implantaglono IBGE de um Levantamentode Estoquesde ProdutosAgricolas Bhsicos." 1987. Mimeo. FederativeRepublic of Brazil. Ministryof Transportation.Empresa Brasileirade Planejamentode Transportes(GEIPOT) (1982). Transnorte e Armazenapem.Brasilia. -60-

Gilmore,Richard and BarbaraHuddleston. 'The Food SecurityChallenge." Food Policy,pp. 31-45,February 1983.

Helmberger,Peter G. and Vincent0. Akinyosoye. 'CompetitivePricing and Storageunder Uncertainty with an Application to the US SoybeanMarket." AmericanJournal of Agricultural Economics,66s119-130 (1984).

Huddleston,Barbara, D. Gale Johnson,Shlomo Reutlinger and AlbertoValdes. InternationalFinance for Food Security. Baltimore:Johns Hopkins UniversityPress, 1984.

IBRD. Appraisalof a Grain StorageProiect in Brazil. ReportNo. PA-135a. Washingtcn,DCs August 2, 1972.

IBRD. 'ProjectPerformance Audit Report:Brazil Grain StorageProject." ReportNo. 2590. Washington,DC: June 29, 1979. IBRD (1983a). Brazil: A Reviewof AariculturalPolicies. Washington,D.C.s John Hopkinsfor the World Bank.

IBRD (1983b). Brazil:Third Agro-Industries Credit Project. StaffAppraisal Report. ReportNo. 4363-BR. April 1, 1983.

IBRD. Brazil:Pricing Policy Issues in Airiculture. December6, 1985. Draft brey Cover.

Kondreas,Panos, Barbara Huddleston and VirabongsaRamangkura. 'FoodSecurity: An InsuranceApproach.' ResearchReport No. 4. Washington,DCs InternationalFood PolicyResearch Institute (IFPRI), September1978.

Monterosso,C.D.B., Charles Wright, Maria Lacerdaand NoboniOfugi. 'GrainStorage in DevelopingAreass Location and Scaleof Facilities.' AmericanJournal of AgriculturalEconomics, 67:101-111 (1985).

Reutlinger,Shlomo. 'Policiesfor Food Securityin Food-ImportingDeveloping Countries.' In AnthonyChisholm and RodneyTyers (eds.)Food Security:Theory, Policyand Perspectivesfrom Asia and the PacificRim. Lexington, Mass: LexingtonBooks, 1982, pp. 21-44.

Reutlinger,Shlomo and KeithKnapp. 'FoodSecurity in Food DeficitCountries: Probabilistic Simulations of the Effectof Trade and StockPolicies.' In D. Yaronand C. Tapeiro (eds.)Operations Research in Agricultureand Water Resources. Amsterdam:North HollandPublishing Co., 1980. -61-

Salathe,Larry, J. MichaelPrice and David Banker. "An Analysis of the Farmer-OwnedReserve Program, 1977-82.' American Journalof AsriculturalEconomics, 66:1-11 (1984).

Sarris,Alexander H. "SpeculativeStorage, Futures Markets, and the Stabilityof AgriculturalPrices.' In Gary G. Storey,Andrew Schmitzand Alexander H. Sarris (eds.)International Aaricultural Trade. BouldersWestview Press,pp. 65-97 (1984).

Thompson,Robert L. 'The Role of Trade in Food Securityand AgriculturalDevelopment.* In D. Gale Johnsonand G. EdwardSchuh (eds.) The Role of Marketsin the World Food Economy. BouldersWestview Press, pp. 227-275(1983).

'Uma safra de problemas."Viggo, pp. 48-53. March 11, 1978.

US Departmentof Agricluture.Foreign Agricultural Service. BrazilAnnual Oilseeds Report. February27, 1987.

Valdes,Alberto. Food Securityfor DevelopingCountries, (ed.). Boulder:Westview Press,1981. -62-

BRAZIL

AGRICULTURALSTORAGE AND MARKETING REVIEW

ACRONYMS AGEF Rede Federalde ArmazensGerais Ferroviarios, SA RailwayGeneral Warehouse Company

AGF AquisigOesdo GovernoFederal FederalGovernment Acquisitions (Minimum Price Program)

AGROSUL Empresade ServicosAgropecuarios do Mato Grosso do Sul Mato Groso do Sul State StorageCompany

ANAG AssociacAoNacional de ArmazensGerais Associationof GeneralWarehouses

BNCC Banco Nacionalde CreditoCooperativo BrazilianCooperative Credit Bank

BNDES Banco Nacionalde DesenvolvimentoEconomico e Social NationalBank for EconomicDevelopment

CAGEP Companhiade ArmazensGerais de Pernambuco PernambucoState StorageCompany

CASEGO Companhiade Armazense Silos de Goils Goias State StorageCompany

CASEMAT Companhiade Armazense Silos do Estadode Mato Grosso Mato GrossoState StorageCompany

CASEMG Companhiade Armazense Silos do Estado de M4inasGerais Minas GeraisState StorageCompany

CEAGESP Companhiade Entrepostose ArmazensGerais do Estadode Sao Paulo Sao Paulo State StorageCompany

CEASA Centrode Abastecimento,S.A. Centerof Supply,Inc.

CENPs State Commissionsfor Norms and Standards

CENTREINAR CentroNacional de Treinamento em Armazenagem NationalCenter for StorageTraining

CEPLAC ComissaoExecutiva do Plano de Recuperagaoda Lavoura Cacauneira. ExecutivePlanning Commission for Cocoa -63-

CESA CompanhiaEstadual de Silos e Armaz4ns (Rio Grande do Sul) Rio Grande do Sul State Storage Company

CFP Comissao de Financiamentoda Produc8o Commissionfor ProductionFinancing

CIBRAZEM CompanhiaBrasileira da Armazenagem BrazilianStorage Company (Federal)

CIDAGRO CompanhiaIntegrada de DesenvolvimentoAgropecuario Parafba State StorageCompany

CINAB Comissao Interministerialde Abastecimento InterministerialCouncil on National Supply

CIP Conselho Interministerialde Pre§os InterministerialPrice Council

COBAL CompanhiaBrasileira de Alimentos BrazilianFood Compeny

COBEC CompanhiaBrasileira de Entrepostose Comercio BrazilianTransit Storage Company

COCAR CompanhiaCatarinense de Armazens Santa Catarina State Storage Company

CONCEX ConselhoNacional de Comercio Externo National Council for External Commerce

COPASA CompanhiaParanaense de Silos e Armazenagem Parana State Storage Company

COTIA CooperativaAgricola de Cotia AgriculturalCooperative of Cotia

CTPIN ComissSo de Compra de Trigo Nacional National Wheat Buying Commission

CVRD CompanhiaVale do Rio Doce Rio Doce Valley Company

DIPAC Diretoriade Inspecao,Padronizacao e ClassificaIao Directoryof Inspection,Standardization and Classification

EGF Emprestimodo GovernoFederal Federal GovernmentLoans (MinimumPrice Program)

EFV.: Estrada FerroviariaVit6ria - Minas Vitoria Vitoria - Minas Railway Company

FAE FundagIo de AssistAnciaao Estudante Foundationfor StudentAssistance -64-

FEPASA FerroviaPaulista, S.A. Sao Paulo Railway Company

FGV FundagAoGet6lio Vargas GetdlioVargas Foundation

FIBGE Funda9lo InstitutoBrasileiro de Geografiae Estatistica BrazilianInstitute of Geographyand Statistics

FINAME Carteira de Financiamentode Maquinas e Equipamentosdo BNDES BNDES FinancingFund for Machines and Equipment

FND Fundo Nacional de Desenvolvimento National Rural DevelopmentFund

IAA Institutodo A9ucare do Alcool Instituteof Sugar and Alcohol

IBGE InstitutoBrasileiro de Geografiae Estatistica BrazilianInstitute of Geographyand Statistics

IBC InstitutoBrasileiro do Cafe BrazilianCoffee Institute

INAN InstitutoNacional de Alimenta9loe Nutri98o National Food and NutritionInstitute

INPE Institutode PesquisasEspaciais Instituteof Space Research

IRR Internal Rate of Return

ITAL Institutode Technologiade Alimentos Instituteof Food Technology

POTOBRAS Empresa de Portos do Brasil, S.A. BrazilianPort Authority

PRODESAR Programade Desenvolvimentode Armazenagem StorageDevelopment Program,

PROINAP Programa de Investimer.tosAgropecuarios Agricultureand LivestockInvestment Program

PRONAGRI Programa Nacional de Assistenciae Agropecuaria National Program of Assistance to Agricultureand LivestockDevelopment

PRONAZED ProgramaNacional de Armazenagem National Storage Program

RPFSA Rede FerroviariaFederal, S.A. Federal Railway System -65-

SEAP Secretaria Especial de Abastecimento e Pregos Federal Price and Supply Secretariat

SESAC Secretaria de Serviqos Auxiliares Comercial Secretariat of Auxiliary Marketing Services

SIMA Sistema dr Informag8o do Mercado Agricola AgriculturalMarket Information System

SNAB Secretaria Nacional de Abastecimento National Secretariat for Supply

SUNAB Superintend&nciaNacional de Abastecimento National Superintendencyof Supply -66-

BRAZIL

AGRICULTURALSTORAGE AND MARKETING REVIEW

GLOSSARY

arbitrage Processof profitingfrom the price differentialbetween futures contracts which are purchasedor sold virtually simultaneouslyin differentmarkets. If the price of sugarrises more in London than in New York (allowingfor currency fluctuations,delivery costs, etc.), an arbitragerwould sell Londonsugar and buy New York sugar. armarzmgeral Generalwarehouse company, which provides storageservices to the public. bankers'acceptances Mortgageson bondedagricultural commodities(represented by storage warrants). Banks retainownership of stocksin returnfor financinga percentageof theirvalue, providing an easy means of financingcrop storage. Bankers'acceptances are considered securities,not lo&ns. cerrado Prairie-likeplains of centralBrazil.

futurescontract Regulatedcontract covering the pirchase or sale of a commodityor financial instrumentfor deliveryor cash settlement at a specifieddate in the future. The contractspecifically states the quantity, qualityand deliverycondition of the item concerned. In practice,however, holders of commodityfutures contracts only rarely take deliveryof the actualcommodity, as the contractsare often liquidatedbefore the deliverydate. futuresmarkets Exchangesspecializing in futures contracts. Investorsuse futuresmarkets either as hedgers (to minimize their price risks)or as speculators(those who assume the price risk in exchangefor opportunitiesto make money). Although futurescontracts promise forward delivery of commoditiesor financialinstruments, in fact physicalcommodities rarely change hands (althoughthe futurescontract itselfmay be tradedmany times. -67-

xraneleiro Flat bulk storagefacility developed in Brazil,consisting of a large single storagebin with a conicalhopper, dug into the groundin a V-shapeand covered by a metal roof. hedging Minimizingprice risks throughtrading of commodity futures contracts. A producer wishingto hedge price risks from holding stocksof, say, 5,000 mt of soybeans,will both sell a futurescontract for the 5,000 mt (promisingdelivery on a fixed date in the future)and buy a contractfor 5,000 mt of soybeans(promising to accept deliveryon a fixed date in the future). This effectivelycancels price gains or lossesto the producer. In actualfact, the producerusually liquidates his position before making or accepting delivery. sertao Arid areas of Northeast Brazil. storage warrants Certificates guaranteeing the existence of gradedagricultural commodities in bonded warehouses. Storagewarrants are always backedby insurance. -68-

BRAZIL

AGRICULTURALSTORAGE AND MARKETINGREVIEW

STATISTICALAPPENDIX

Table of Contents

1. Grain Production

1.1 Plantingand HavestingDates 1.2 Productionof PrincipalCrops 1.3 GeographicDistribution of Grain Production:1980-1986 1.4 RegionalImportance of Crop Production,1984 1.5 Structureof Crop Production,1966-1985 1.6 Actual and TargetedProduction of PrincipalGrains 1.7 ConsumptionProjections for Major Foods,1990

2. StorageCapacity

2.1 AgriculturalProduction Requiring Conventional Storage, 1984/85 2.2 AgriculturalProduction Requiring Bulk Storage,1984/85 2.3 StorageBalance Sheet, 1984/85 2.4 Static StorageCapacity by Level 2.5 Static StorageCapacity by Ownershipand Level,1985/86

3. Storage Financing 3.1 EGF and AGF Programsfor SelectedGrains, 1986/87 3.2 MinimumPrice Program:Federal Government Acquisition and Loans, 1985/86

4. Grain Trade

4.1 Grain Importsand Exports,1976-85

5. Sourcesof AgriculturalStatistics -69-

STATISTICALAPPENDIX Table 1.1 Page 1

BRAZIL

AGRICULTURALSTORAGE AND MARKETING REVIEW

Plantingand HarvestinQDates

Commodity PlantingSeason HarvestingSeason Cerealsand Grains: Barley: Rio de Janeiro,Minas Gerais, and Sio Paulo. March-May June-September

Parana, Santa Catarina, and Rio Grande do Sul. May-July November-December

Maize: Amazonas,Part, Acre, and Maranh1o. November-December May-June

Piaui, CearJ, Rio Grande do Norte, Paraiba, Pernambuco, AlagOas, Sergipe and Bahia February-March June-July

Minas Gerais October-November March-June EspiritoSanto, Rio de Janeiro,Goils and Mato Grosso September-December March-April

Sao Paulo October April-June

Parana and Santa Catarina September-December March-July

Rio Grande do Sul April-May

Oats: Minas Gerais March-May June-September S6o Paulo November-January Parant, Santa Catarinas Forage May-July November-January Grain March-May September-October

Rio Grande do Sul: Forage March-July July-December Grain June-July November-December -70-

STATISTICALAPPENDIX Table 1.1 Page 2

Commoditv Plantina Season Harvesting Season

Ricet Para. Acre, Maranhao, Amazonas, Piaui, Cearh, Rio Grande do Norte and Paraiba November-December April-Hay

Pernambuco, AlagOas, Sergipe and Bahia March-May August-October

Espirito Santo, Rio de Janeiro, Minas Gerais September-December February-May

Goits and Mato Grosso U a

$1o Paulo. September-November March-May Parana, Santa Catarina Argust-November January-May Rio Grande do Sul October-November March-May

Rye: Rio de Janeiro, So Paulo. March-May August-October

Parant June-July November-December

Santa Catarina, Rio Grande do Sul May-June November-December

'Wheats March-July November-January

Feedstuffs: Cowveas and soybeanss Central states October-November March-April Southern states August-January December-April BRAZIL

AGRItCULflMALSTORAGE AND MARKETING REVIEW

Table 1.2 Production and Are Hrvested of Princlual Cron 1986-1987

1 9 8 7 1 a 6 I 9 8 0 AREAHARVESTED * PRODUCTION ARE HARVESTD PRODUCTION AREAHARVESTED PRODUCTION CROP (hb) (at) (ha) (Mt) (ha) (mt)

8,159,747 2,814,640 2,160,0O 1,728,267 Cotton S,581,56 2,886,266 5,5690,927 16,404,976 6,997,We 10,421,692 Rice (paddy) 4,751,878 9,019,156 867,216 480,442 e68,626 887,634 cocoa 637,962 419,26 2,259,646 2,eo7,2eo S,4560,6 4,041,439 Coffee 2,493,600 8,753,879 238,493,M86 4,814,000 270,431,405 Sugrcane 3,681,522 245,964,175 8,646,896 5,484,126 2,219,478 5,215,0 2,019,426 Bases 5,817,197 2,547,197 279,589 387,257 2n,00 8S,149 Tobacco 268,586 46,262 2,660,313 26,655,997 1,948,eo 28,98,728 Umnloc 1,865,756 28,072,526 9,185,61 18,834,691 9,279,00 16,818,832 Soybeans 10,182,751 19,278,422 Ca 12,420,129 20,541,227 18,499,060 26,796,647 HaIz* 11,201,786 22,017,14 8,854,729 5,684,727 3,439,980 6,148,559 *heat on 2,60,852 4,826,554 O- > Soure :.IGE, Leivntemnto Sistsomtico de ProducaoAgricol@

* USDA.stimate onCI7hINdata -72-

II tIL STATISTICALAPPENDIX AgriculturalStoragead Urketis lEeie, Table 1 .3

GIOUGIiC0IS?lilJUTOI01 6UIIGullOII101; INI - 1966(1) (mtictom.) prodction 1980 111i 1312 1903 1914 15 1966(2) brado,m

Dom londosia 296,10?339,262 310,343 218,919391,416 463,334 521,911 0.91 cre 48,10 53,613 6,0O 42,015 I8,6I5 51,616 69,6l6 0.l h&noa 20,909 16,141 12,213 5,341 4,4156 6,911 1,532 0.01I lotaia 31,646 59,982 21,339 41,916 21,908 23,354 15,289 0.03* bra 241,81 2317,950 336,336119,691 324,238269,110 363,U2 1.161 Imp 1183 3,541 3,028 2,111 2,222 2,419 1,299 0.01C Sbtotal: 1,354,489111,901 803,381453,906 839,955 783,3831,014,911 1.84* 2.65$ ;.44 1.62* 1.100 1.65 1.381 hbrabao 1,593,183 811,0041,937,742 539,165 1,456,I 7118,062 1,656,4I63.041 Phii 178,025 168,010384,681 94,585 4125,813 581,311 620,94 1.51l Cearu 166,20* 90,000 398,852 74,036 516,369 339,213 54,036 1.00* Rioor. do hte 12,229 15,870 30,51? 11,150 212,598 113,806116,616 0.32* Warailb 6,990 62,N18 81,604 55,035 346,054250,640 310,694 0.51$ Ponabuco 121,318 111,296 26,l19 1,516 4719,410 30,0415 400,239 0.13* Alaoas 38,494 36,051 100,591 25,846 110,583 101 1154,631 0.28 Sergipe 25,100 41,532 143,110 27,954 132,524 134,564 165,3150.38* 0aia 610,002 458,4i4 601,331 306,341 214,216 903,069 949,512 1.12* Subtotal: 2,626,241 1,858,559 3,811.759 1,181,696 3,958,361 3,530,431 5,119,601S I.4 S.53* 3.17* 7.82* 2.61* 1.18* 6.23* 500T11W?623 DmuaGenis 4,480,8164,285,283 4,511,690 4,196,1884,022,2 41,999,14435,N210,88 9.101 spiritoSuto 311,670 331,185 349,590 255,656 350,610 372,943421,011 0.11 lio deJueiro 143,140 159,517 181,426111,612 117,482 183,246204,176 0.31* Saohalo 4,365,776 4,694,981 5,445,7405,306,653 4,606,1473,011,121 1,925,420 16. 36 Subtotal: 9,301,402 9,477,13610,468,U 9,940,303 9,156,447 10,636,152 14,839,170 21.20* 118.23 19.20* 21.171 21.93* 18.01* 18.16 500!18 Parha 13,311,50112,398,864 11,42,532 11,186,05311,443,5J3 13,115,611 10,115,601 11861 Sutacatrina 4,304,455 4,509,040 3,815,132 2,691,107 3,733,564 3,621,070 3,254,153 5.91l Rio6r.do Sol 12,520,55313,60,390 10,619,93711,801,838 13,091,564 13,117,105 8,602,44 15.17* Sibtotal: 30,196,51530,117,294 26,358,301 25,689,998 26,268,60 31,190,43622,041,200 40.41 5S,18 62.25* 53.21S 56.68 55.59 55.01* Dattoor. dohl 2,119,453 2,11,8568 2,215,524 2,114,815 2,791,209 3,514,2535,02,204 9.20 lltto Grosso 1,469,146 1,391,046 1,703,714 1,144,517 2,0172,6092,633,669 3,298,18 6.0St Solas 3,700,192 3,033,519 3,916,639 3,576,589 3,612,682 4,245,417 3,059,321 5.61* Distr. Id. 29,586 42,I64 55,130 63,474 69,624 1011,650 113,943 0.215 Subtotal: 1,348,9176,584,081 I611,6188,059,455 8,626,32410,61,869 11,492,2l 211.01 14.40* 13.342 16.17* 11.1.8 16.1m 16.63* total BNail: 51,021,12449,348,811 49,532,964 45,325,420 50,647,147 56,12,691 54,548,815 100.0OS

1) Icludes: rice, oats, rye, barley,bons, corn,soybes, sorgn ud shost. xcludescoffe. See tables2 throug10 for productionfigm of eac of the grain icludedhere.

(2) I16, LevantanetoSistentico d Proucesogricol,' PrelminaryReults. surce: ?beRepler-eber Conp. for yearly*lts, saidto bebaedW on IN statistics. -73- STATISCAL APPENDIX Table 1.4

8RA2IL AGRMCULTURALSTORAGE AND UARKITING REVIEW

Regional Importance ot Crop Production.1986

Regional Production as Percentat Total Production

CROP NORTH NORTHEASTSOUTHEAST SOUTH CENTER-WEST TOTAL(a) --.------_------__------___-_- FOODCROPS Wheat 0.0 0.0 6.9 86.9 8.2 100.0 Malze 2.9 9.8 32.6 40.0 16.2 100.0 Rice (paddy) 4.9 20.0 18.7 33.4 28.4 100.0 Manioc 15.7 62.2 19.$ 17.7 4.1 166.0 SlackSean. 0.0 41.8 28.2 19.8 5.1 100.0 EXPORT& INDUSTRIALCROPS Soybeans 0.0 1.6 12.6 47.7 B8.2 169.0 Cocoa 10.5 86.2 2.8 0.0 0.8 16a.o Coffee 0.0 2.8 72.7 21.0 0.0 160.6 Sugercane 0.1 27.6 81.4 5.3 5.5 100.0 Cotton 0.1 18.2 40.7 86.9 5.0 100.0

Source: IsGE

(a) Rowemay not totaldue to rounding. -74- STATISTICALAPPENDIX Table 1.5

DORAZ I. AgriculturalStorage and MarketingReview Structur of Croa Production.198 - 1986 (5 of TotalNational) Percentof TotalValue of PrincipalCrops Category 19"8 1973 1977 1988

CEREALS 30.0 2S.8 20.4 33.1 Wheat 2.6 3.5 2.8 8.7 Rice (Paddy) 14.2 10.2 7.6 11.1 Maize 13.3 11.9 10.0 13.3 ROOT CROPS 15.8 12.? 13.8 10.8 Manioc 7.7 8.9 10.7 7.0 Potatoes 4.9 3.3 2.4 3.0 Peanuts 33.0 1.3 9.5 0.3 BLACKBEANS 9.5 10.0 6.6 5.6 FRUITSAND VEGETABLES 8.7 7.8 6.8 12.9 Tomatoes 1.7 1.4 1.7 2.4 Oranoe 2.0 3.0 3.5 5.2 Othor 5.0 3.5 3.5 6.3 Subtotal,Domestic Food crop 683.8 56.2 49.3 62.7 EXPORTAND INDUSTRIALCROPS 36.2 43.6 50.7 37.3 Soybeans 1.4 12.9 17.3 13.0 Coca* 1.6 2.3 4.2 3.4 Coffee 10.6 9.3 13.1 6.5 Tobacco 1.6 1.4 1.6 n.d Sugarcano 10.8 7.4 8.6 13.0 Cotton 8.4 9.0 6.3 5.3 Othor 1.9 1.4 0.7 1.8 Total 100.0 100.0 100.0 160.0 SourcesIBGE -75-

STATISTICALAPPENDIX Table 1.6

BRAZIL

AGRICULTURALSTORAGE AND MARKETINGREVIEW

Actual and TargetedProduction of PrincipalGrains ('000mt)

C1sJm Production Average Target Net Increase 1985 1980/84 1989 over 1985

Rice 9,019 8,900 11,819 2,800

Beans 2,548 2,281 3,128 580

Maize 22,017 20,647 28,817 6,800

Soybeans 18,278 14,623 21,878 3,600

Wheat 4,247 2,186 5,997 1,750

TOTAL 56,109 48,637 71,639 15,530

Source: SEPLAN,Plano de Metas, 1986 -76-

STATISTICALAPPENDIX Table 1.7

AgriclturalStoratead Ntkaethlglevie

COsuptlOuProjectiova for Njor lowsd,1HO st6Il NICe(tDDT) 0IS mIIUI(1) lill? (2) UIIOCILOOI Sil tOtU

Boldomia 140,134 32,34N 2606 64,48l S1,226 40,3J3 331,141 Acre 21,691 6,431 S18 12,131 10,196 8,036 65,90 AmatoiUs 141,08? 32,642 2,1622 64,906 51,516 40,646 333,319 loRaia 11,973 4,148 334 8,269 6.510 6,118 42,412 luap 10,4O 2,1401 194 4,198 3,113 3,006 24,141 Pre 361,46 81,424 6,t19 166,280 132,134 104,140 84,1141 Subtotal $98,961 161,320 12,9912 321,550 266,614 201,380 1,661,11? lomunst laraaeao 199,980 1r0,796 55,826 111,100 211,646 94,618 813,164 Fiai U.,850 IS,128 27,814 56,412 120,604 47,193 436,121 Cara 233,186 199,166 86,196 129,548 261,654 110,212 1,016,862 lio Gradedo hrtt 83,894 71,651 23,420 46,6 101,331 39,651 366,566 raniba 116,825 99,116 32,613 64,903 141,108 55,216 618,441 ernabeco 264,414 226,818 13,830 146,930 319,446 126,000 1,166,661 Alos 91,11S 11,6 25,452 50,653 110,126 43,093 396,368 Sergipe 52,212 44,592 14,576 29,006 63,064 24,617 221,116 labi 439,41 375,332 122,681 244,148 630,810 207,108 1,920,146 Kbtotal 1,581,063 1,360,117 441,361 816,368 1,909,61? 141,288 6,908,520

EbpiritoS ot. 188,529 68,11 42,321 69,154 23,165 73,969 455,916 Riode Jeneiro 909,814 289,815 16,801 531,607 81,142 11,334 2,312,613 SaoFailo 2,926,441 121,841 18,880 1,191,642 39,440 1,000,342 5,910,498 lins Geras 1,114,231 414,615 251,671 363,300 140,839 449,124 2,112,2U6 Subtotal 6,111,08? 1,508,365 466,733 2,168,203 284,686 1,941,369 11,1114,33 0m arana 66,266 192,261 109,868 3988235 30,040 236,881 1,S12,S21 SaDtCatarin 294,815 103,949 69,400 216,322 16,242 128,080 811,80t Rio6raude do Sol 693,284 20,18 119,535 433,313 32,886 251,415 1,646,480 Sutotal 1,433,365 0S6,36 2188,793 1,046,870 18,961 622,418 3,816,189

CoansuptiomFrojecttor, for ajor foods,1,90 (coat.) cm NisT Golin 339,092 78,260 6,303 156,995 123,965 91,694 801,29s Nto$rosno 144,150 33,269 2,619 66,314 62,694 41,630 340,838 Nto Grossodo Sol 126,400 28,941 2,331 51,689 45,840 36,128 296,329 federalDistrict 291,113 66,502 4,860 71,994 11,240 64,098 6004s0 Seutotal 411,113 85,443 7,191 129,683 57,086 110,224 196,134

TOTAlUtIL 9,301,619 3,603,281 1,208,016 4,534,614 2,685,824 3,612,669 24,844,093 (1) 6rainad by-productsfor bun oauption (2) hr milling Source:11, latudo aeiouali Despesa1iliur -77-

STATISTICALAPPENDIX Table 2.1

nuL 4riculturalStorge nd larketinglevies 4sticulturalProfdcti.e lquiring ConeatioalIStorafe

COTttO 6100181116 cotIF DUIS tODACCOIIIUS SOUl UH3ilnCFOR 10

Nom adoala 3$,122 66,601 101,126 4,O06 30,322 42,318 en 126,813 161,605 bu eos 992 39,800 462 LI'M 3,332 Donila 6.435 po 2it tn6,3 2,000 21,593 21,450 257,032 302,075 Pbr, 499,806 625,613 Subtotal 2,000 0 0 62,451 0 61,2S0 0

31,032 40 2,195 43,182 131,192 221,116 araaO 7,t35 285,316 fiat 87,121 60,521 320 136,611 160,145 812 71,321 313 32,163 103,211 391,639 cem, 215,259 Si. 45,522 41,545 1t,010 111,330 13,053 6tandedo brte 11,061 443,330 htnib 79,228 635 18,268 16,22l 135,610 49,9148 71,260 4,551 116,240 161,065 1,101,084 h ambaco 614,949 liUous 20,073 40,532 31,414 502,601 20,019 10,412 1,454 11,026 4,110 13,011 61,472 182,621 Segip 111,195 1,511,640 bDbe 162,133 4,827 118,259 293,236 16,068 110,000 71,292 Subtotal 642,677 1,788 118,251 716,147 52,582 23,0196 1,113,065 1,520,343 5,126,311

616,816 IspiritoSato 556,565 44,461 30,176 65,016 10,581 433,186 25,11 461U,525 Itode Jeiro 6,011,816 laoPa.lo 702,516 281,820 1,212,840 313,345 533 3,326,133 105,931 208,663 1,506 1,211,626 237,811 4,218 S18,t67 151,054 2,389,142 has Gerais 1,561,163 Sutotal 911,111 291,326 3,041,031 616,205 4,611 0 4,300,193 34J,218 sm 2,511,406 hara11 1,035,661 26,825 588,0I9 4i5,611 35,980 10,004 150,641 232,586 Catatin 312,153 160,055 23,271 115,140 660,61 Sata 7,659 204,6tJ 511,453 Rio rnd doSo 6,108 131,211 154,618 Subtotal 1,035,t61 32,9J3 5881,061 94,981 350,673 10,004 181,51 632,363 3,111,481

60tie 116,t25 s0 73,160 2,61t 12,213 45,8156 51,031 IataGreo 21,831 2,186 44,873 1i 35,810 41,408 152,133 atoDross. do Sol 106,311 4,412 30,020 61,102 201,151 lderalDistrict 654 684 1,638 Stotal 244,449 1,288 0 146,601 2,636 0 6,02S 154,950 601,153

amtO11il* 2,183,266 331,335 3,153,3712,547,161 410,902 364,350 6,302,818 3,154,18019,109,081 16.0 100002 muotoUlD 14,42 1.72 19.0 126. 2.1U 1.81 32.02

Sources:1111, Levanteato Slstematico deProducao 4rlicole' 181suga) -78-

STATISTICAL APPENDIX Table 2.2

AgricltueralStorage ad hrketingItwe' AgricultuaP uctisaleirig Ilk Storae livolicauro - RI Rift RcE out OUIgulls 1U*1 SOTSuIS SO_1 SO9U WTOI1IU1 TOTAL

lea 1 220,546 141,664 366,212 htt 2,112 25,1t0 53,562 Au tm $,216 2,138 5,356 3,ral. 15,6I9 1,163 22,612 kmu 1,408 19 2,201 ha 133,530 134156? 26l,11? Subtotal 402,165 1 0 318,141 0 0 0 0 120,926 wmm traka 6I22,611 121,141 9,012 151,030 thai 266,01 259,033 t,3S6 12,353 515,519 coss 19,1420 165,010 1,364 4,819 11,5122 211,365 l Gradedelertt 61592 50,301 166 S9,t1? Paraiba 14,811 151,501 1,12N2 161,66 hauA 20,U41 196,119 11,545 629,355 24,182 1,081,322 Alago4 18,016 49,016 152,514 611,66 sargipa 29,061 94,451 123,136 mubI8t6,513 430,013 15,t6L 31,t66 216,235 666,o? 8Ubtotal 1,136,304 0 0 1,526,193 64,612 63,961 1,1603,210 325,060 4,13i,960

apiritoSmte 91,1?0 230,512 0 lio deJauiro 104,101 61,195 32,462 S. aleo 508,111 215,15 2,100,881 960,366 42,403 89,390 28,2114 112,104 lm feral$s 650,614 12,929 3,015,115 662,601 9,141 4,125,360 S"btal 1,561,164 0,124 0 6,214,503 1,642,963 42,03 819,390 37,951 5,326,566

Parn 216,0002,642,153 106,623 5,603,113 4,413,000 24,146 31,842 13,325,611 Sta Catrtu 46,386 44U,00 101,614 2,119,049 563,682 3,315,111 lb Stnided al 3,201,04 933,510 128,156 3,158,5915,111,141 100,640 13,639,194 ubtotAl 3,949,412 3,1619,663 336,11511,521,353 10,688,031 125,166 0 31,642 30,260,416 cmw m 6oiua 115,240 155 1,690,110 1,356,240 8,130 3,171,531 late6teue 521,116 162 410,500 1,656,039 990 5,613 2,595,310 hlte6teo do5i1 323,993 317,64 321,334 2,558,121 16,522 1,115 3,551,316 hehtrl Oitriot 8,U42 221 1,200 11,161 101,196 Sbttael 969,491 316,610 0 2,435,8045,662,166 26,242 0 13,016 9,412,S15

TOTALunt21 6,019,156 4,241,191 336,U95 22,011,19416,218,422 211,112 1,692,600 415811950,493,165 I f TO" IIIInT 166 8.42 0.72 43.62 36.22 0.52 3.4S 0.61 100.

Sources:IIE0, *L'ntaato Sisteatic.do Prodcao Agricola; In (sugar).

1640047 -79-

STATISTICAL APPMNDIX Table 2.3

mmi 4rler1talot Storae ad lrtketla lhit

StotS1eLi'lu SlIMS! 51 1tel

S"EWS/ ~~~~~~~~~~~~SQlKWS/ SIS/ SUtl 130)868t A1 lLAm (OIJCUt) 0 1U1 m*AI2lII (IuOICII IIQIIUmt 8 5u&S0.t2 (8ICI21 lol hOdola 318,223 1316212 101,728 100,624 11,104) 465,940 1201624 1369.3161 Aren 53.562S53562) 42,31 22Ilt1 M2A1N1) 15,U0 216t1 (141,24 haseeta s,5ut 11100loo 5144 1tU,H9615 U1,34 l.2SS) 111,S6) 6tl046 (14.5151 loai M2,M2 (22,812) 3,312 (6,101 13,505 26.264 1150) (5,363) farm 2.201 54,6664 62153 6,435 1U4I10 17t111U,642 23585s 330,233 in"e 16,211 (265111) 302,015nsts (3013) 518,152 126 O5IA.456 Subtotal 120,526 6,561 (1543) 625.13 33.31 1231,214) 1,341,531 455155 (6"6. l mum tarae 751,030 10.254 (146,116) 221,11 3m1115 1S.00I 1O1,0S 40",235 (516.16 i1al f54f5I8 (I5I58951) U8311 12.11 I1U3.3321 830,516 912.0 (138#211 eain 215,365 U42,118 UIUS419) 314,639 351,22 (43,511) 13,0o04 3N3,910 (215,814) Uio mdedo lotettt56 5,048 (505615) 25,255 162,215 (133.044) 354,126 111,263 IU3UJ631 ariba 186,664 1.345 I7U,319) 443,330 112,8111 (210,434) 631,114 162,241 (441.153 Ptmuabuo Itl,322 125,305 (9551,17) 1,11895l4 313,081 (115,55) 2,1910.46 438,314 (.1O2,012) A1aeato 5, 24,113 (154.525) 81,1.5 465,285 (205,660) 1,434,63 435.082 11,004,5S5) Sgitt 1Z3,538 1,54 (SIISS1 1221 21 ,318 115,253) 01,150 324,522 IV21311 aiba I08,i57 31,61 (U46.4) 1,$1S.640 451,026 11.1281614) 2,455,13? 4.11 (. Sbtotal 4,139,56 26U.8 (4,411,122) 2.365.131 (2.11618401 2,866,62? 2,6331165 (1,232. 62)

SlMmIS bpirito Suto I 800,143 800143 91611 1.615.42 1.112.550 691,11 2,661,1 1,112,653 fit"e enais 328,2 54,261 (242I2) 465,525 3 1 (60,111) 158,001 404.05 (354,2m liode Jetiro 112,?c4 171,030 1(3614) 6,011,816 131,245 (U5131 6,164,522 502 5 (5,28112241) Se Oloal 4,825.380 4,014,410 (810,510) 2,I35 ? 1.61,U 3 5s66,881 1,215,122 22,61,0013 4.,455,5 SohobSUl5,2 6 55104 (2U.U2) 1U1557,63u1,66,05 1, 6 1 115,185,154 7-1.425

Sm UJOU 13,325,811 11140211 I(IS.185.6) t2,r911, 8,405,143 3,626334 15.28 1555,6 (359,3251 lut Catania 3.316.11 2,385,010 (1,530,041) 11061 114,1 24.050 4.r00,730 ,05,731 (I,ntS 11 Ito Oreod.do 5.1 13.839,494 5.135.821 (814595613) 521,453 1,315.026 8,74.13 14,150,541 14.525.647 374.18 Subtotal 30.280, 15,665,115I2 (24.15s313 3,181,481 l6t508.25 22,124,157 34.n61.53 32,111.341 01,.61 61

Cu Ms hatereo 3,111,5$3 540,018 (2,231515) 251,03l I2,351395 1.10851" 3,422,558 2,2U.151 (1.122.61)) atoGrec do bl 2,5t5530 1,405,203 (11190.231) IS2,133 130,14r1t,16 2,4.013 2.335.852 (412.2211 Got"n 3.551.318 1,413,185 (2.128.181) 201,152 2.561,524 2,66.1173 3,153,120 4.341,213 621.584 eGenlDIsttict 101,6 60,154 (UIU142) 1,638 64.U52 63,324 21,334 1255918 26,512 Subotal 51425.155 38195.284 (5,686.681) 601153 5.32.574 4,7116.42110.033,124 0.1430U (8I0.266 tOtlL 3121 50.413.8 24,0,615 (25,t34,210 U125115,081 35.l34,218 15,525,211 ,202,12m 60,053.5130 n0,148.55t )

Sotenu: 1 prdctioaI iree)gu ClIam (stotagefigues) -80- STATISTICALAPPENDIX Table 2.4

Agricultural Storage and Marketing Reviev

Static Storage Caacity by Level

1 OLOI S CK t O t A L L 51811 IC10 1 8 TW11RL COI I INUI II 10 18uL OLLCTeIOI11n3 10l5L

t il 91,U24 3,000 1.24 3,00 0 ul t12,1 4,350 4.300 12.01 4,350 4.311 asj;,s t,100 3,100 3,N00 4,112 1,061 10,t 53,112 13,11 13,NUSl i-,.tias 4'20 0401SA, 140 41201 61 841m i" 242 24t 24 l4 242 2 itar 24,211 2.1 30,43I 3l,532 11,5132 06,041 122.14 111.143lU,41 Subtota 28,111 4,111 34,138 262,1 415,1N00 I319 210I1 41.010 123.531 umm Npumb" 3,164 6,300 210.003 11,071 60.053 214.155 590.01 .46,33 fili U4,211 21,150 64u,2 2115o I Cum 11.25S 31,613 30U,lt3 3S,282 14510 201,tOI20 35, 111.3t6 lIo Stne do ortu 4.3I5 4,653 121,16 I,UI4 21,N2 I2,Ul 11.46l 26,035 Paraiba 4,613 4612 106,232 !SU 35.l36 310105O 38.290 35,I36 hrises 56,162 5,505 60,638 140,NI0 11,33 1514,110 20I3I30 I 6 2IU3l,3 l1w0 Il 12S 24,51 65,11t 21,J0 N22 65,II6 21,436 31s6,t6 lo glp. 1,554 10,033 ,n215 21200 30,013 ,S S,AM laia 4,001 30,47n0.130 20230l21.58 U11 20SU8 51,130 U2O0,0 sbtoual Mn.u 133306 166I.1 11,2001,1I 255,112 910.111 I.203.1121,41 1,1.48

spirito Ul 43,,4 321 115,56I 61,80 125,32i 231,002 61,0O 136.153 le d ;wino 51,544 133,40 211,10I 434,331 354,42 0 ,6u23 teo?.11 2.0N4,3S 424.90U 12 5,16NSS35,42,055 613,I 13511,106 ,421.354 101. 2,1144.15 lm nleis 5133,141 26M I,661110 2031251 S6 2,1090,515 I4S2OU0UO s5Wut 2,50.524I1N.SU4l 141,416 t,613.141 044,S00 2,011,011 1,213.665 1,1616,014 2.31,315

hrau I2SN 11 1,636,504 153,113l 4I3,160 1U,211 615,16 31,43,403 2,0,,33 1,46U1,63 las Catariu Nl4,0 214,5132 IM6,530 N,221 SS,231 61,223 1,52.131 160151 241,1SI Ito link doSol 2,654,316 1,S1,J08 00,550 ,410,300 605,444 10,182 1I,III,III 2l,34,IJ3 NIt Subtotl 10,20U,190 3,560,015 1,0,11,, 14,032209 1,620,000 041,02 24,20,404 5,115,515 2,I11.02N cmmsi ot1 1,13,460 33U,S20 2,216,501 111,33 320.04 1,1, 0 hbaefrom 16,541 I14,46N 1,14,50 255,343 1,lt0,054 42,032 0 Itb 6roaedo 41 3,016,l0S 3,5114 12,511 201,1e2 3.6.00106 535,14 0 mista District tO,33 20,310 20,310 23,64 21,654 23,54 41,01 41,112 41,512 Sutl 1,02,3 513,3 20,310 1,0U4,18 43410 21654 3S,13,132 1,01,530 41,1n2

IOtOtLShi 15,1l2,53S 4,I003,01 2,031,142 24,106,172 3,356,121 3,141,408 4U.1U.1 6,35,136 6,10546

$mo g1m2, Cahtroacoul aa osidda rsaudor -81- STATISTICAL APPENDIX Table 2.5

gnal4..al 1l.ig. k.4Swt itu1,. 11415.Ilu stww.,i 4.u. ss15L.wI,5451 Susie4*1t1P tpUtt it ""IN 10 1ool

an3231 5413. t h S.k Irtl"t toile h lU MS 1uMI hl4. . hint.t MltbU toit ile hhUt. Mfo.ilio. titt Mostt

hsim5. 1~~~4,4241,64 3.44 .14.64 ,1.3 3.13 Lu. 12.111~~O 4,354 4,354 UN11 4)14 U.R Imum ~~~~41,42)1,5 1.53 3,14 15.441 I'm.4131 3.13 . 41,42 I55.14 1.14 4.44 14,441 3.014 14lain~ 4,151 14,4 5,43 4.241 4.4114 5,41 54. 15A4 41,441 13.2) 6.33I 56,611 41,13 24,255 2HIM.34 11 U11.44 13.21" 4.545 85.121 11.34 14.1, 242 24m 242 242 4.1AI: I,O 5,1 VAR .31 3n44 4,) I 2J5I 4 4 34.114 113nM 4,4 W.5 53.251 34.4)1 54.555 mum kbunt. 141.13 MAN51 4351 35,543 14,4M 4124 3,44 4.34 545,431 WAS12 43,41 5,j1 56.41 4.154 _s 31,1U 2. 13,111it 1115 31,13118 n.nu 13,1 s1t.n 4... 521.254 51,61 11,414 4.431 13,510 115,44 15,211 5.141 11.411 5*1,5 14,524 54,414 4,1 1514 11.131 454. 4.bt. 33,515U."41,14 US41 11.251 M"14 53.142 M.4 4.3 3342 "M) 2,412 55,412 6,41 11.3111 Stull 54,1142 11.2 52.1111 14.11 t5,241 24,441 4,413 4.51 Ww14 VA44 t2.l" 23.111 14,141 24,411 Nfuimb 14.33 14.651 24,413.61 444414 3,15 31.311 54,543 5,5 31.213 11,455 514,341 44.w1 51450 13 53534 44.41 3163.. 2~~~1,54144.410 4,314 22,112 14,131 1141.314 1in in 24.1151 21,111 "4,l1 4.414 U.1,41 14.5)1 12).152 14,443 2,445 1,215 I,3 t2m,3m 1,'m4 2.5 $.n11 LU.SI 1.154 bus4. u1,514 1t5l,S 31,i21 21,513 512,451 1 t512 4,I5 4,234 34,415U.S 55,51 M 1 3..141 515.3U n .4U 4.1A.4.: 455,$11 524I 1535,5 2,111 411,445M44,555 34,511 41,112 ,434 4,41 .31,4 123.441 411.411 6.44454 5341 551111.431 WA 11.441

Elm 14.1. 41,21 53.431 128.434 14,42 1,14 5,3 321,241211,45 54223 54,15 5,54.4125,544,31 3,155 515,244 1114 3.13 5.1i1. tau 11.541 "Is" 55.314 U.11".612 34,45 1,154 34,34 1,tS4 11 1445 12.133 25.354 24.65n 1U3.14 he.4 Melt. 3,155a 24512411 121.141 3W4.N 5,4151 4,413 551.4 31.110 32.111 MM114 4WM so .1, 2.34.1151,443W SU 32W155,43 1.512.45144.311 ,51.115,11.11,026 1)2110 113.224 244,41 31,12413.541.615 1,225.M 11.4 U44,1541.354.14 t441.45 5,1.4.:_" LIMA3,13,516 4 $11.601n.111 01,"tU12,322 21,1422.5t .n115.33U$st s S,t12.60 aU 2.3 .14likli.S52 t 31.mies 3.4 244.41)aI H.2ti.l LIlSS?4,1"11, 411.414Mm| 11M41i 311.511 1.91 1331 1U.36.511U

km,. 21644,5112,100.114 WIN1.444 454,4) 32.2 1 3431 4.635.4142.444,63114l .21 151.24W423.32) 31.545 6.5551.3441.341.221 .3151.115 1.511.113 131.143 34,4416 km .. 244,1#U3 1 34154 II-451 24 1 4.51 1b.425 MIT4 52124 31, 33 12.i 6I.214 111.411n,.ms 1,014.US 1n,m4 1IS.43 U.61l is. fr. is 1. 1 .5312.3451,322,134 516.325 1,312.542 11,424 1.112 4,113.51)314.151, 444.332 1.512 1544 4..23,4 4.1,153 13.413 5,13.153 511.131 45.12) 5,14.4.1 3,411.614.114,133 543.614 5.56,14 312.1 LM1.4.541.231,411 ,7144.01 15U,112,5 5.3044.1 4334114455.441 52.13.4444 15,334.161 2,411,611 3,244,243 5.544 145.144,44

kkA6. doId44 13,352 314,413 211,34) 414,434214,151 514.41 5.2114,4 $11.411 514.461 .15434 4. S1it10. 24",61 1s.n1 U.1,1 1.m t3,1 1 1,U n 1N.14 M.M1 IW.U S.S11, 21112 356,4,U Kil. hi3. 54.131 6.711 14,013 4.124 54,13 6.12 54,541 5.21 15.545 MI 55,15II121 12 153,152 5.441 31,121 4.4 33.122 0,441 WOW: 2.414.34 II.4.4 HI.Mi 1l3.t1 14.134 5,1 1.1U3,33 412,411 WI.N 151.34) 55,545 ,12t 445,1U .3041UUS l.t4t 631.U3 3311 U,44 1.4.1* 15,5331.1451.1.141,1 5.151,13 3.121.523 2.514.251 2.144,4151K,.113 4,445,14436 t,136.,'I ,11.54 131,131.454,11 2.11.1511 215,511,31 4,25.1 4..1113 3I1,51,1322,44,12 $oom: 423113

m.u1m. -82- STATISTICALAPPENDIX Table 3.1 Page 1

BRAZIL- THE 86/87 RC? AND AM PROGRAMSFOR SELRCIRD GRAINS *)

PRODUMT am~ eligibility farmersand j millers farmersand coops I coops period 3/87 thru 8/87 3/87 thru 1/88

fin, limits - up to 80% of production;more if loan is to amortizeother agr. credit. - up to 60% of milling capacity during harvestseason. grading not required value dependson quality (130 different classesand values);If not graded, Cr8.3.16/kglong grain,Cr$.2.69 all other fin. period - for coops and farmers,on first 60 tons 150 days untill first repayment. - rest, depends on month of contract,e.g. a 3/87 contracthas to be amortizedin 5 equal monthly installmentswith 3 monthsgrace.

ellglblllty farmersand only financing farmersand coops (bagged for bulk coops only) (baggedonly) period 3/87 thru 7/87 3/87 thru 10/87 fin, limits 100% of productionfor farmersand coops;coops can financethe productof non-members. grading not required

value - dependson quality (15 different grades);If not grade Cr.5.20/kg, Cr$.4.17/kgand Cr*.3.38/kgfor three main varieties. fin, period dependson month of contract;up to 9 tons can get up to 1S0 days creditwith a singlerepayment; more than 9 tons can get up to 240 days credltwith up to 90 days grace and,typically,4 equal or unequalmonthly repayments. -83- STATISTICALAPPEPIZ Table 3 1 Page 2

eligibility - coops - only financing coops - millersthat for Industries do dehusking - only financing (requiresCFP for corn on the agreement) cob (coopsand farmersonly) period 3/87 thru 8/87 3/87 thru 1/88 fin. limits farmersand coops up to 80% of productionresp. rece'pts,more if loan Is to amortizeother agr. credit - for industriesup to 60% of throughputduring the harvesting period. grading not required value - 100% of the minimum price for shelledcorn. - 70% of the minimum price for corn on the cob. fin, period - farmersand coops, for first 120 tons of shelledand first 170 tons of corn on the cob, 150 days grace and negotiatedmonthly payments after that. - for amounts over 120 tons, repayments depend on month of contract. e.g. March contracts have 90 days grace and 4 equal monthly paymentsafter that, etc. (note:the collateral,whole corn, may be substitutedby corn oil, corn meal or degerminatedcorn, facilitatingIOU operationsfor processors) BOYS ___ ellgiblllty farmersand only financing farmer and coops for processors, coops excluding those In Isplrito Santo, Parana, Rio Or. do Sul, Rio de Janelro, Santa Catarina and Sao Paulo. period 3/87 thru 8/87 3/87 thru 1/88 fin, limits - 80% of production, resp. receipts,for farmersand coops in Parana,Rio Or. do Bul, Santa Catarinaand Sao Paulo;100% of productionresp. recelptselsewhere -84- STATISTICALAPPED IX Table 3.1 Page 3

crusherscan flnanceup to 60% of their capacityduring the harvestingseason. (limitecan be surgassedIf loans are to amortizeothet credits, IncludingInvestments) grading not required value 100% of the minimumprice. fin. perlod - for farmersand coops the first 100 tons for 90 days; above that amount 4 monthlyrepayments with 60 days qrace and a mximum credit term of 150 days. - the latterconditions apply equallyto processors. (note:the collateral,soybeans, may be substitutedby soybean crushingproducts facilitating ROW operationsfor processors)

*ligibility farmersand lonly financing farmersand coops coops ifor industries period 3/87 thru 12/87 3/87 thru 1/88 fin, limits - 100% of production grading not required value 100% of the minimumprice fin, perlod 150 days NW - Rsnreut 135 d GovernsFederal - rederalLoans aar - aMi*Lcaos do aO rno WU eral - FederalPurchases COV - 5gmODe d0 1- with 8ales Option SOV - Se ooa de V nga - WithoutSales Option

3ourcs:aula Rural Abril year 1 - nr. 1 - Apill1987j p9.72-75 -85-

STATISTICALAPPENDIX Table 3.2 Page 1

wollud sw SW6"mY h

X011 ~ hclelterlIlpig. MIU I UIU 1 _u

61611661116 * Ilt (Pilewal * t4466omaU*II 669365 wita t,~ ~ ~ ~ ~ ~~St. 62 1 StIll. C 1,II 1)1 1.: Si." 63 lt 61)11.6 1% 611.#61 31w61 1.1 blose tilit COt : fliten: I.11 a I."ao .1 :6,1 ,ll13663na I n : p ll"1:1 1 '" : l*t1433|.1 36nilna U uu ." . n.t l. 3* s 7 Il . lU 46?t.

:l : 1.31: :4,664 2,621 61: 1 :

k,, LU 3,66 611: 2,n6 : ,33 .3 .u 614 6.11 1,62 III El 31,36 6.61: I.6U1 : : 2,636 6.11 4,4 I.U.: t1,46 6.1: 316,611I. n1ob i hI. LU i1s 6.8: "1 2,4to1: 6 6.3! 4,444 El 13 136.31: : i : : 66 .61: 33,6 6

Peni. LU : :1 :: 16 6.31: .s 6 1.6. 63466 .66:: 1 .11: : I,m U.: 11,41 6.3 6616,64 6.3It: : : : 3,341 6.: 12,6546.1 ll 13,561 t.1t: off I J,6S C.1: ,16 6.31: 114,m4 .61 I" . NO64,446(6.61 : 24,16661: 1.6: 1,36 6.1 : (I) 6,6 6.11: HIM 3.08: 4,1 3 ll 461,! 33.3: 6,i 6.1U: I'm U.: S,M U.: 1,116.11 : 31,1346.11: 1INT4 .11 6,64.4.1 - 56,52231.16: HIM 4.. 66 6.41: 33,1 .61: 31,1 6.1: 14,31431.61: 4.m 4." lUt 6llt31, 15.3t: 3,6Ut 3.4: I,231 6.3: 36.63 6.6:. U4,4313.: 253,31111 .4: 4 6.3

soho . L ,1 61.1: 14,142 3.31:: 1,33 .6 M311 63: 2 : 31,111.66: 561,61 . W 1,456,66123.1: 111,3 2.1: 1 .3 : 3114 36.11: 1,13,131W.t: 4,3 3.1: 1,51, 16.3 I lussnd. WU 2,1,613tl,631.31 4.11: 411 6.31: 3,N1 1.31: 10.,16 4.11: 1,66 1.11: 55,Xl U5. El 414,4166.61 : 1M 2.11: 3,161 .6.4 In1,6 1.61: 111,2643.61 33,61 : 1,13,33 .3 uW L 1111 1.3t1: 53,111 M.: 1,131 3.61 m.1 11.61 114,6244 11: 21 3A6 : ,131.311-1 Wl 1,61,26131.61: 226,6164.a: 3,36 6.11: 11,5 31.31: 1,311,61536.12: 6,413 16.61 4,661331.21. on Puse LU 3U.44 4.1: H3,M t6.3: 6,11 5.61: 346 61: W.3S 16,1 23: : 6,2 1. El 2,441,65644,61: 11,6111.32: 31,63636.3: 3126346.61: MA3433666 641,3 11.11: 1,464,63224.11 WIS. ata: L2 : 64,1163.: : : 46 :: 3333163.26 El n U.: 2m1,6141 4.11I146,61 : 215,13211.31U: 6.32: 133,6431.6: 3.6,13 3.1: I,63W 4.1 noI.n* LU116,3W 13.11: 1,M13.11: 4 12,4 2.61: W64 .3 El 1:11,3 16.1: 2662 4.11: 36,6263.61: 66,6 3.61: 1,5,1 42.: 6,361,111H."

s bu W 341,4561.31: 61,64612.1: 1,5 66.1: 264,63 6.6: in6,43 . : 1,113 14.:1 W I,61,6 44.61 4,46Is,156.31- 463,1646.: 3,617.61 .111 1.623,41 1.111 2,221,4 6161 12.161 1.61

63-1.1.1 -86- STATISTICALAPPENDIX Table 3.22 Page 2

Rom Wm twoe

_ I'm .1: , ,1 12 : 2,15,1 4.11: 21,414R: 2616 4*: 3,616,64 * 31,11 6.21 33,3616.61 : 2,1366.41 : 334,m166.31 : 33,64313.3: $1.1413.11 : 1.16,4m1.1621 1st, giw 3 416 6.11: 3,46,61133.11: "2IN6 .2 1,112,61661.31: 3, 166.11 : 3.410.6136.1 * 1,166611 3 : 11,1 n.2:3,21m t6,U11i 6.-1: (b) 411U1%.1 i: ,66 6.21 o6 16 .11 hI. Iao.hi N 41,13 .61: WA13432 1.n: : 114,614.4: s 3,13 1.1: 11,2t . : 114,1161t WAS)11M.51: 11,1 1,41: 34 I)I: 21,16 2*: 161413363: 3 1, 4: 64U1 3.6

Iibue) N 1,6 11l1: 6,1 6.1: S, 3 111: s,16,16 64 : 43,6116.2 : 1,62a,3246.61 1,61it6 : 1,m1 6.21: 2,411.6: t16"1 .lil.t: 13,6:1 32.11 ,2.M: 3 "1,12 4

3,31 .31:: : 14 : 1,144 :: 166 61 ol itlMA331,t4 ISn41 : 4.0.Wss,n41,46 WAA'6.1 : 3M 6.1: 1i U.tS,1M .4 :INA' tAII1,60 10.,m.1U 11,144211s2l : 10-1m10.0#t,116,63 6.2 *| 664143.2: 1,,1311.21: ,44161: 1,2,1 161: 4,tU6 11.21: 3,,1166: 3161,3 31.21 M 1.46,331WAS: 4,42111.0: 14,116.: 1,13 116.": 4111 16.M: 462,1116.6: 1 116.4W

W bd d 2"dl

(a) N (64,s1.us4 iMs.M ow d (howl" d %"li..o mli M" fr t. 111-0.. 216. (i)Su 4. Ms Itlitha of huh. -87-

STATISTICAL APPENDIX Table 4.1 Page 1 of 1

HAML AgriculturalStorage and Narketing Review

GrainIm t d Exports:1976-1905 ('000US$)

1976 1981 1983 1984 1985

INPWRtS Naize(a) 764 169,502 37,220 46,470 33,900(d) 'heat(b) 549,703 963,032 904,860 840,890 591,100 PaddyIRice) 5,219 66,605 113,403 112 76,040 Soybeans Ic) 182 274,423 28,947 120t226 119,782 Barley 3,173 35,230 35,693 34,097 27,621 Oats 4,759 4,582 2,789 1,966 747 Rye 124 55 60 (d)

TOTALINPORTS 562,8001,513,374 :,023,036 1,043,716 849,230

EXPORT5 Naie( a) 170,102 2,356 74,725 29,062 7,280 ubeat(bI 169 181 1,030 130 PaddyI(Paddy) 11,956 19,939 1,288 434 312 Soybeans lc) 1,?79,9643,192,259 2,563,286 2,566,509 2,544,673 Oats 966 21 2

TOTALEXPORTS 1,963,1593,214,656 2,640,331 2,596,135 2,552,245

Source:FAG Trade Yearbooks, various voluses.

Notes: (a)Waize products, namely maize fiour and oil as wellas the unprocessedgrain. Ib) Wheatproducts, naemly flour andmsslin as vell as the unprocessedgrain. Ic) Soyproducts, nasely saybean cake and oil as ell as the unprocessedbean. (d)FAG estimates; for maizethe estimateonly pertainedto ai2e oil. -88- STATISTICALAPPENDIX Thble 5.1 Page 1 of 1

AgriculturalStorage and MarketingReview

Sourcesof AQriculturalStatistin,s

1. IBOE (BrazilianInstitute - Crop productionestimates of Geographyand Statistics) - Estimatesof fish, forestryand livestock production - Surveysof storage capacityand stocks - Agricultureand livestock census(every 5 years)

2. CFP (AgriculturalProduction - Crop forecastsand crop FinanceAgency production - Commoditystocks - Productioncosts - Marketbulletins - Producerprices

3. CIBRAZEM(Brazilian - Storagecensus StorageCompany) - Stockinformation

4. FGV (GetulioVargas - Prices received by Foundation) producers - Vholesaleprices and priceindices

5. SIMA (Agricultural Market Information System) - Wholesaleprices

6. CACEX (ForeignTrade Agency), - Exportsand imports 7. CIEF - Exportsand imports

8. USDA (US Dept. of Agriculture) - Worldmarket trends

9. VAA (Sugarand AlcoholInstitute) - Sugarproduction

10. IBC (Brazilian.CoffeeInstitute) - Coffeeproduction 11. CEPLAC(Executive Planning - Cocoa production Comimssionfor cocoa)

12. INPE (Instituteof SpaceResearch) - Crop forecasts using remote sensing (experimental basis) -89- ANNEX I Page 1 of 3

BRAZIL

AGRICULTURALSTORAGi AND MARKETINGREVIEW

PROJECTION OF STORAGE NEEDS

1. This annex outlinesthe methodologyand assumptionsmade to project storage requirementsover the next five years. The most detailed projectionswere made of grain storage requirements,where the need for additionalbulk handlingfacilities is greatest, especiallyin the South- Centerstates (MinasGerais, Sao Paulo, ParanA,Santa Catarina,Rio Grande do Sul, Mato Grosso,Mato Grosso do Sul and Goias). These statesare the major grain producersin Brazil,and are also the most technicallyadvanced.

2. Storage projections are giver.by state, to identifyregional storageneeds. Given Brazil's size and the dynamismof the agricultural sector,however, it is difficult, if not impossible,to pinpointstorage needs withinmore definiteareas. In addition, the almosttotal lack of data on on-farmstorage makes it difficultto separateon-farm etcrage needs from collectionlevel needs. Therefore,these are assumedto be includedas part of collectionlevel capacity.

ProductionEstimates

3. For basic grains (maize,paddy, beans, wheat and soybeans)in the major producingstates, production forecasts for 1992 have been based on extrapolationsof regression lines fitted onto 16-yeartime seriesdata, endingin 1986 (exceptfor the statesof Mato Grossoand Mato Grossodo Sul, which were establishedin 1978 from a singlestate; data from 1978 have been used in this case). Thble l.A summarizes the projectionsand Table 1.B gives the detailedprojections by state. For other statesin the North and Northeast,and minor producers,projections of grain productionwere made in aggregate,based on a six-yeardata series;this is summarizedin Table 1.C.

4. For crops other than the major grains,projections were made on the basis of trend growthrates over the last 9 years. These are summarizedin Table 1.D (bulkstorage) and Table 1.3 (bag storage).

StorageNeeds

5. Net grain projectionsare summarizedin Table I.F. Crop production figureswere adjustedby 5Z for handling losses(4Z in the case of maize). No adjustmentwas made for seeds, human consumptionor animalconsumption on-farm,as thesewould all requirestorage facilities. It was assumedthat all storageneeds (exceptterminal storage) would need to be met within the immediatearea of production. This would not necessarilybe the case if neighboringstates had significantexcess storagecapacity, but this is not the situationin Brazil,according to statisticson availablestorage (Table 2.1). Some downwardadjustments were made to accountfor double-croppingof wheat and soybeans(in the South-Centralstates) and maize-beans(primarily in the Northeast). In addition,because the Northeastis characterizedby a majorityof small producers, with significanton-farm retention and small- -90- ANNEX I Page 2 of 3

scalemarketing, it is assumedthat SOZ of productionof major grainswould be handledin bags, except in the major rice-producingstates of Maranhao, Piaui and Bahia,where 252 of productionwould be handledin bags. In other states,it is assumedthat maize, paddy, other grains,wheat and soybeans would be handledcompletely in bulk facilities;beans, coffee, cotton and otherminor cropswould be handled in bag stores (Table1.E). Sugarwould be handled in both bulk and bag facilities(Tables l.D and 1.E).

ExistinaCapacity

6. Estimatesof existingcapacity are basedon CIBRAZEMfigures from 1985/86. CIBRAZEMestimates gross capacityat some 66 millionmt. However, becauseof the marginal physical condition of some of this storage,the totalshave been adjustedto 60 million mt usablestorage. These figures are updates of a storage survey undertaken in 1976, and probably underestimatecurrent storage capacity. CIBRAZEMis presentlyinvolved in carryingout a new cadastreof facilities,which is nearlycompleted. Rough extrapolationsof survey returns to date suggest that currentnational storagecapacity is between 75 and 80 millionmt, uncorrectedfor storesin poor condition. However, the existence of a storagecrisis this year, especiallyfor grains, emphasizes that Brazil still faces an important storagegap.

OverallStorage Needs

7. The 2rojectedtotal storage requirement is 97 millionmt by 1992; with an estimated current capacity of between 60 and 70 millionmt, additionalstorage capacity of at least35 to 50 millionmt will need to be built by 1992 (Tablel.H). This includes storageat all levels,from on- farm to terminal; however, no separate estimate was made for strategic storagefacilities, based on the mission'srecommendations concerning these (ChapterIII). Theseestimates give a ratioof storagefacilities to total productionof one to one, consideredthe minimumnecessary under normal crop conditionsand with adequateincentives to hold stocks.

StorageNeeds by Level

8. Separate estimates were made for storage needs at the collection/farmlevel and intermediatelevel (Table1.I). Collectionlevel storageneeds were based on an estimate of 501 of production(adjusted for double-cropping)in the area;a totalof 15 millionmt would be needed. For intermediatestorage, an estimateof 5OX of collectionstorage needs (or 25S of adjustedproduction) was used, giving a deficit of 16.9 millionmt. These are very rough guidelines,and actual decisions to invest in collectionor intermediatelevel stores should be based on the comparative costsof each facility. For excmple, work by GEIPOTin the Ministryof Transportshows that collectionlevel stores (whichwould also includefarm- level)are often more economicallyefficient, due to the reductionin unnecessarytransport costs, even though on a per-tonconstruction cost basis, largerintermediate stores may appearmore efficient.1

1/ See FederativeRepublic of Brazil,Ministry of Transportation,GEIPOT, Transeortee Armazenasem(Brasilia: 1982) and C.D.B.Monterosso et.al., "Grain Storage in Developing Areass Location and Scale of Continuedon next page -91- ANNEX I Page 3 of 3

9. It is difficultto determine terminal storageneeds, as these are eitherheld by agro-industries,or are port storage. In the South,port storagedoes not at presentappear to be a bindingconstraint, particularly as the marketingsystem for soybeans (the major ezportgrain) are well- integrated.The miasionrecommends, however, that furtheranalysis be done of port storageneeds for major consumingareas (Sao Paulo,Rio de Janeiro, and major ports in the Northeast),particularly those which are dependenton grain importsfrom other statesor from overseas.

Continued from previous pa&e Facilities", American Journal of AgriculturalEconomics, 67s101-111 (1985). -92-

ANNEXI TableI.A Page 1

BRUzIL AgriculturalStorageand Narketing Revies ProjectionsofGrain Production, 1992(a) I0u at) TOTAL STATEUZU11 PADDY BiEAS WHEAT SOYBIANSG61UlS OIi1 1,212 R IAST 7t,4173 SONTREAST NinaoGerais 3,525 1,409 264 39 1,231 6,468 hspiritoSanto 470 Riode Janeiro 250 SaoPaulo 3,194 1,115 449 169 1,482 6,409 Subtotal 6,119 2,524 713 20a 2,713 13,597

$O01T Parana 6,156 69 256 3,472 6,441 16,394 SantaCatarina 2,927 603 337 271 830 4,968 RioCraude doSul 3,573 3,593 340 1,121 7,041 15,668 Subtotal 12,656 4,265 933 4,064 14,312 37,030 CEN WEST NatoGroaso 774 331 0 0 3,130 4,235 NatoGrosso doSul 485 197 0 1,379 3,702 5,763 Goias 2,350 1,797 T8 0 2,697 6,922 federalDistrict 197 Subtotal 3,609 2,325 78 1,379 9,529 17,117

TOTAL 22,984 9,114 1,724 6,451 26,554 76,429

1986Production (b) 20,510 10,399 2,221 5,432 13,335 51,897

Source: li8sionprojections lotes: (a)Gross grain production, uncorrected forlosses anddouble cropping. See Tables1.Band I.C, i,nnex I,for details. (b)Prelidiuary -93- .^.EX I Pigures IA and IB FIGURE LA - BRAZIL Page 2 ORAINPRODUCTION IN MAJO RECON

Tom.

1305 205-

1080 1801 1802 180l 10 10ow

M. N.L ¢ .t C S. am CEmNTW.

FIGURE 1.B- BRAZIL 2_ - GAIN PRODUCTIONTM (EXCEP SOUTH)

,A5.

22-SM

105

1800 1801 1802 183t 1 a N. + N.e] o ILL x Conn W. -94-

ANNEXI Table 1.1B Page 3

BU21Lt AgriculturalStorge ad larhetiagRview GRA1NPIODucItOU uD PIOJ6Citio1 Bt StAil GratiProduction and Average Annul Grovtb Rates in Goias GrainProduvt.on and lvetage Asnual Grosth Rates (000 at) in bto Grosso ('000It) tUAI/ bil/ PADDYI/A101BUIS/ SOtINAIS/ fill/ UlAl/ PADDI/ARIOZSOtBUIS/ UO IILIO 11 CSCA FIIJI0 SOJA AII KIIIO £3CISC S0JA 1970 657 1,218 115 10 1978 119 977 7 1971 654 973 133 41 1919 109 915 27 1972 663 1,183 131 50 1980 143 1175 117 1673 704 1,166 74 90 1981 191 942 225 1974 1,084 959 95 99 1982 288 1002 366 1975 1,274 S68 113 13 1983 319 791 611 1976 1,27 1,319 107 49 1984 38 8173 100 1977 1,663 620 67 90 19b 411 622 1166 19178 1,086 621 78 100 1986 U62 194 liii 1979 1,781 1,155 72 282 1980 1,752 1,498 31 456 1981 1,867 921 63 383 1982 1,922 1,397 94 561 1983 1,723 1,081 73 694 1984 1,1720 1,038 79 648 1985 1,691 1,115 14 1,356 1986 2,464 1,356 51 1,128 AverageAnnual IverageuAnual Growthlate 8.6% 0.7% -5.0% 34.4% Grovthlate 20.5% -2.6% 101.7%

ProjectedProduction ProjectedProductioa 1987 2,155 1,168 52 1.027 1987 522 602 1,189 1988 2,232 1,176 48 1,100 1988 512 548 2,144 1989 2,309 1,185 44 1,1173 1989 622 494 2,391 1990 2,386 1,194 41 1,246 1990 673 440 2,637 1991 2.463 1,203 37 1,319 1991 723 SIS 2,1884 1992 2,540 1,212 33 1,392 1992 774 331 3.130

Source:l161 productioadata; missionaroJections Source:I1tGI production figures; slsaion projections Notes: lotes: (a) Preliniary (aUNato Grosso and lato Grossodo Sulwere created in 1977frow the single state of NatoGrosso. Therefore,projections for thetwo states bave (b)Preliminary.

06-Jul-87 -95-

ANNEX I Table 1B Page 4

6UI P9WIOI3D PiOJIC2tt1S BYSY1151 Ieotinsedl

GrainProducton audAvtrge Annual Grouth btes IG Ito 6tosso do Sol la) OrainProdection and Average 1nnual Oroth btes isSias Gerais I00alt I 000Stl YUII Slltl PADDI,A110BIIIS/ vISllAS018AISi lUll/ 3511!PADDY/UI5 VIIII/ S018111U/ J10 UIIOL CISCA IIIJIO i1310 iWI U0 IILIO tI CtsCI 13100 S0s 1910 2,302 1166 281 0 2 I1si 11 420 30 412 1llt 11116 52 264 t 1913 146 451 70 821 112 2.111 1.055 316 0 9 1950 18 04 149 1.324 193 1.914 821 282 0 36 198I 233 452 65 1,347 1914 2,313 418 419 fi 58 1182 258 331 113 1531 1915 2.323 713 284 0 61 1983 236 451 159 11801 1976 2.341 962 266 0 1o 1984 262 382 19 2.001 191t 2.135 634 3 0 106 1S1S 321 324 318 2.5S9 1918 2,433 644 2t7 14 13? 1986 321 216 450 1,965 191S 2,608 659 211 12 IS 198p 3,011 832 332 21 210 1911 2,S13 689 393 16 '74 9192 3,031 132 335 .3 390 1183 2.615 17b 28 4" 1914 2.556 14 211 24 1t4 1185 3,01S 851 538 13 W83 1986 3.266 951 253 21 19? iAerateloAual AveraeUmsual Grogthbate 13.1l -5It 40.39 19.5 Groutblatt 319 1 5i 0 3t Ust !1 6t ProjectedProduction ProwectedPrAduction 19181 358 291 SU 2,620 1987 3.118 956 214 28 845 198S 384 279 661 2,836 1188 3,248 1.029 212 31 922 18 401 258 815 3.053 lob1 3,317 1.111 l10 33 Hi 19Ss 434 238 B86 3,268 1190 3.381 1,2u2 268 i (q' 1I91 451 218 1,114 3.486 1311 3.416 1.301 266 3t 1.4 11S2 485 1i1 1.371 3,102 1992 3.52S 1.409 264 39 1 5ii

Source 1F1061nnual production data; mission estimates Source:1111 production data; mission projections

Notes! Notes: ii Preliminary 18)Nato Grosso nd INto Orosso do Sal vete created ibiPo;.tonial regression used is 1971froa the single state of DtoGrosso, Therefore.projections for the two states bate onlybeen donte fro 1118. ibi Pol4noosalregression used.

06-Jal81 d d i- - i-f [t- -- -- !-- -- l

UW - -

s~~~0 .4 0a ca " -i n. a n - a - -~ ~~ - a. *

a ~ a -S*o ca a cant- -a 8-

G 4,* i , __ _0_0_n - - -4 - -a - - _. -I

- 8C .0 *c. -0.------e:

___ _----c 0ca cnm --- a- __.n 00 Eoo _0m - ar a 50 - - - S aS o- OS 4m m0 - S0. a ma ca

og__ __X__o__a __ SOS o - nO - an an S - C a a -. a - -osss - fi a e-*0 - -. - ~~~-C as - *0 f b i-*

.~~~~~~~~~~~~~~~~~~~~~~~~S

.3 ,3 *~if fi=z~*ff9**~ s-° , aS -_- _e fi * _ o-os . s

hO~~ t*0*0 * -. --- __S

i~~ n - - n o fle Ofi - S fi - C S- -

.3 asx =^z-

e X°-.o swa° X c - _ e s _ 0 oi _e 2 ;3E0

Va 3g. -wx-s§x X. -s. -.

_ . _ 3

@0 C - 6i°!ia°i X e

hoWio plctuutOf al brUa leriktatigslist 6ai tUI5 8063113 ACIIIMU~ ~*3820360b ~ II 00319UI~ U 163*~ 611~ UAIS180"n-~ nun5~ CUU~ I509031 163*133 ueCo LUJ601$ 618115 89UU 1. AC?OM0W118C109 (a) 19o 218,10t U.O1I 20,10 31,tU4 2U,N1 1,513.1U3 11,02S 1U.200 12.229 681,10 121,318 30,414 12,10 610,002 1t1o 33O,262 $3,01S 18,141 51,.02 t31,110 3,141 8111,04 It8l1n ,0011 15,110 62l0 11,21 36,051 41,153246,444 6 31,343 l60.010 12,23 21,31 2331,331 328 1O931,142184,681 n31882 30,51 81,604 tO2611I 1S0.1U 143,710 601.337 1963 21l,HI9 42,005 5341 4I946 IIS6l 2,114 5,I1S 94,585 14,036 11,I0 J.035 41,16 25.946 21.914 396,341 1184 331,418 81,11 4,416 21,10 324,238 2.m 1,46,1184,603 518,3l 212.0 346I,55 4S,410 110,s18 1312524 214,216 IUS 403,334 $1,618 I.S4 23,154 219,11 2 411 18.012 50N,311 330,213 113,08 250,640 301,045 101,646 145 30018 16 528,000 19,900 1,l90 15,010 363,989 2,0 140,6,0008116,00 545,080 115,09 311,09033 0N 1,00 16 4,000140 33.000 ate oftoatS 1001oo 63St u1.2 11I11.81 O.1 0.61 2.81 21.1 5561 26.02 11.91 23.82 38.11 1 41

II.flJlOD UI6 13009?O0I

1181 45,601 15,019 44 20,00 25tIS 2,312 1,486.161 111,03 555,1 20,369 6112. 451,08 110,I1 1803t1 8803,16 19U 515.119 18,160 (21211 N000 214,6184 2,360l 1,51,2111 811,531 611,801 23,201 416,l1 $93,31 1S0,153 291,265 858.113 18 545,832 82,02 (4,60) 21,080 32,515 2,328 1,636,31 16,05 860,012 261,225 421 3146 213,325s 222,33u 11,601 1991 SIS945 l6,243 (1,260) 20,00 411,366 2.86 1.1S5502 1118.161 143,13 26 .163 5l,344 800,516 234.43 243,521 96,432 I1SI 60601ON ,105 f 9.821) 21000 42,2318 2,236 )l1,NlC1 111111122 3051 5U1,121,231 692,40 255,661 26IN, 1.021321? 192 63t,110 93,1261 (12,33) 28.00 446,011 2,213113,124 1.216.53 868.430 310,040111 6N 115,236276,62I 215.1t1 1,O1l.0I5

Scarce: Prodcti. daa IromIM0; aab.i ptojectiou htea (a) ltclode "n , km, ties, o?km ad skit. b) Basedon a rereloa of 114-8Ipr*ductlos, XilS gavea better it. (ic De to a deella4lgtr1d 21000It cotwit odtlo erd. -99-

ANNEXI Boll Table 1.D AgriculturalStorage sod lertiag leties Page 8 Projectionof OtberCohMIUeM JhUlkStrage. 1192

57*1 01113OUIIS5 50111W1 5001 CISYOIIUIS TOTAL

loidosla 0 kct. 0

aloriaaoniu 0 Pare 0 ubtotal 0 0 0 0 0 imwis hranbao Plau 9,053 13,181 22,234 Ceon 9,014 51323 12,294 26.632 Rio6tde do okrt SIB 811 Panieb 17,384 17,384 Pernabco 14,132 8814,22 25.802 924,856 Almon 802,98 82.91129 Seripe abia 44,119 294,743 340,U2 Subtotl o 18,319 11710,625 346,839 2,135,783

-piritoSnto 0 Riode Jaseiro 0 la0Palo 51,106 ss,3m9 20,104U7 7388 viaa erai 10,398 10,391 Subtotl 0 51,906 15.319 40.502 187,61

arana 120,511 30U104 42511l 20J,0t5 SataCatarin 124,31 124,631 Riortunde doSol 157,388 123,113 210.541 Subtotal 412,516 153,240 0 42,511S08,261 C1 1l coia 10,68 10,686 ato6toseo 1,212 6.2t6 7,418 hto tousodo Sol 20.22S 7,824 271,8 edeanlDistrict 0 Subtotal 0 32,123 0 13.890 46,013 tOt" lIBeiL 41U2518 315,651 1,806,004443,143 2$778.t50 I OfTOTAL tlalIflilo 13.92 10.82 60.62 14n1 10oo..

06-Jul-87

Soures: llt61. 'Lovatato Sisteuticoda ?oducao Agricola. I1 Isugar'

ous; (a)Projection baud on prviu tfandincrease of 11.6p.. lb) Ivrageanul increaet for ca. 191198U1cu 9.6%. loner, to discouttot theispat oftie PIoALCOOLprogmr, aprojection ofS1 p.c. groath i silledsupr eupply as asued. (cl 5 avetrgennul grouth rate asumedtor projection. -100-

ANNEXI Table i.E IIUIL Page 9 18riculturalStorage cad arketies levis, t1oa of Stor1e -=,1g2

7tt4 alm"of C03 C900033l0tSCliffS IWs TOBaCCOIIUIS 0613 WIOCFLOOD ?0tt sUIS Itl (at Ial (bIIa) Ic)al louloaia 35,122 66,606 MOM$N6 66606 re 4,056 31,322 42,31 3.3t22 suam" S92 5611t 121,113 It,9U3 164,931 loraia 452 1 910 3,392 21,10 la 21t 6,223 6,435 6.223 f,ra s,o 21,513 30.245 251,032 313,1f? 232,314 Subtotal S,697 a 0 62,451 0 I6,363 ° 4019,06 653.23 $91,26l 0om3w hruho 13,114 19,312 41 3,035 60,161 131,132 420,116 221.403 Flai 223,511 1211,60 325 136,1? 436,518 3t0,11 Cuse 415S141 Of 110,265 441 46,101 1031219 140,016 609,611 l1oGrai doSortc 116,023 54,006 25,111 156,652 13,053 434,545 3n0.319 Paralba 201,J31 662 92,415 110,301 1I1,211 71,N0I 61,661 515,lt6 Ferao 121,304 101,215 6,411 1,012,246 13,015 1,532,330 1,425,053 laas Sil61 41,5t4 31,86# 101,632 20,023 152,203 610,616 Sergiu 26l690 1,Slt 42,866 4,116 131,S46 61,412 261,66t 226,000 labi 413,3 5,033 115,483 215,6l1 16,325 21900 108s,75 717,7SS 1920,141 1,74,526 Subtoal 1,36,114t,121 115,43 1,011,211 53,323 413,2C5 2,494,301 1,520,343 1,315,4 6,304,211

.-N0t1 !pirito Oato 625,I11 61,050 43,305 65,016 1.001,336 534,256 °lo dJ esiro 35,100 610,321 25,15 611,233 635,53 BoPalo 1,190,523 302,214 1,199,113 421,000 541 41661,166 1059J31 9,101.101 .0I131 " Cusescis 5J1,625 1,570 1,1695,84 251,000 4,133 115,326 151,054 3,551,564 3.300,564 subtotal 2,322,3U8 303,154 4,521,438 180,150 4,819 0 6,050,503 341,21014,331.220 13,550,641 NM lai 2,33,6139 21,32 12,655 243,000 36,41 14.106 211,915 232,506 4.218.4004,035.403 ote Catarlia 320,000 162,309 32,145 195.10 110,134 330134 llo 6nuddo o1 6,369 323,000 15,011 10,111 204,631 701,601 3181,02 ;btoul 2,63,619 34,34411,24,915 5ll6,00 355,015 14,106 255,4t1 632,363 6,112,659 4,604,366 cum s? cols 296,404 84 74,000 U,R4 IT,65 45,856 436,13 362.13 hatoCrow 55,651 S,9S 0 19 S0,35 41,406 156.311 156.311 ictogrow dohi 210,313 4,601 0 61,002 336,576 336,516 FedralDistrict 2,000 654 2,684 68 ubtotal 623,034 1,600 0 16,000 2,613 0 61,513 154,950 131,831 855,130 tOtA UtIL 1,226,813 353,846 5,131,6392,i16.415 416,659 513,134 6,t66,15231,1U410 20.345,020 26,525,542

1OUof 3ISI"plum 24.62 1.22 20.4U 9.61 1.42 1.5i 30.21 10.8I 100.01 Soures 11I, 'Letatuato Sisteatico diProducao Agricola; Iii (sugar) Notes: (a)Based on trendgrowth rates from 1978-85. (b) Basedon regressionprojections of grainproduction by state;see Table I.C and l.B. Beansassumed to be 15%of grainproduction in all Northeaststates, except for Maranhaoand Piaui (10). -101-

ANNEXI Table 1.F Page 10

,IUI laric 1tural Storae ad l lotiq I t t

Ict anttb rodectles 101 Irl

06JIStlD $?28 ?ID T 3s196 bIll?t G50118*11 13?GM 6o01r S?OO?11151h 1B1 518?! CI055 85? 0805 ot? 01055 In? CGlSS Ilt 6105 li GlOSS II? lOlA OC

N01M1 1,212 JAMIN Slt

5I t 1,413 1.1' 3.1116 I.01 $01188111 BIna canla 3,51' 313U4 1.441 1.331 28420 l 31 31 1.21 1,111 68.46 6.110 S.181 251 lattirto Snto 410 441 318 18 R1ido Janito 210 231 104 34 slohalo 32114 3,4" I.1 1,811 44 421 6, 126 1,42 l40 8,401 6.120 15,13 411 Subtotal CM1U '64 2,S24 2,31l 113 o1i 208 o1 2.113 2.511 23.511 12.184 12,68 118

hran ISI ,1S1 69 a 2U8 243 3,412 3,291 61U,1191 1,314J 5II2,128036 243 SantsCataria 2,131 2,812 803 113 331 318 III 2S1 $30 711 4,168 4.141 4,313 32 lio nsrad,do Sol 3113 3,438 3,113 3,413 348 323 1,121 186 1t041 6.6811 21,668I 14.120 23,116 3213 Subtotl 2I.S8 12150 41.1 40152 133 IU 4,884 4.821 14.312 13,I16 37.838 35,301 30.154 RI6

hntoGron 114 143 331 314 8 0 1 0 3.113 2.94 4.231, 4I31 4I031 Icto roan do Sol 4II 468 is? I81 0 0 I.3U9 2,318 3,112 JS11 S118 1,480 t4l4Ul Goan 2,3J1 2,216 I1,7 1 I'M is 14 0 8 2.819 2 512 6,M1$99 ,152 14 ledralDietict 111 Is? 1US 2 lo 3,606 3.41 2,325 21285 18 14 I,31 1,310 98.21 1.8$ 11,117 11,281 21,231 1t

TOiL 22,154 22,841 1,114 8,610 2,124I,638 6,451 8,123 26,114 21,228 76429 72,416 62,484 1,381

s1) bt of kadliug lossms. to ajuatmt ,fortat ns and liveatocconption onftn. a theseo monwdto r"uire itorage*pacn. h adjmatsesti n sad for nmIt, as thtae inta &$medto retuire o-fana rstoas (bh adjustedtor donbInctpitg. for dAblectroping of dat-sopbunin statunakieb grow both. aueed that tS of th erop is dotle croppe, and stonr4 sda rodud accordigilo lot Wan aid beanS is ti lri ad orthnt, it isna e that s01of aion ad ticeproduction is bahulodtm bs andthat S oft beo productio is produced Is the offt-esn

Source% mtisson Prolections (See Table l.A through t.C). -102-

ANNEXI Table 1.G Page 11

igrlcIlturalStorg andIbrbstln Ihalo. V.jectd StaticStora. bob forornlu. 1012

8|011 StOIGI 8106103I10 10111 5100*08

Ell) ldO"lt3 211,S63 1211,1631 J02,181 100,114 I201,11) 14,143 100,624 (43,111 r 40,UI 140,0I) 44,20 lI."?1 (tl,ltJI iI,SI 2l,601 l6l.61)) bu4u 6,421 11,100 5,211 1,144 6N,346I2,202 13,173 01,0OU 67,413 lor.). 8,550 (6l110) $,1096,I01 1,401 I8,010 16N90 (1.141 hti IS0,10 $4,160 (131.843) 211,19l I0,I101 (21,161) 402l,1 238,N85 16360UO Imp. 801 (801) 1,01S 126 (340) I,818 12 (150) s6ubotal )814 U,18 (41,114 $1,31d 313.399 (102,112) 1,014,126 459,859 (834,681)

bro 1,111,21 0,214 (1,10,3 513,101 303,81, (163,211) 1,164,448 400,233 I1,384,2011 a, 6406,33 (14,533) 631,161 "2,04 (41,7118) 1,114,251 32,01 (1,012,310) ur. 312,214 42,68 1328,1) 433,113 351,122 82,011) 604,421 3U33,6 141043O11 Ito6rud dolrtl5, 111 3.044 2144,8832 111,$11 112,2)1 (11,313) 333,101 11,213 (282,242) Puir 610,5513 8,34 (214,208) 337,S10 112,806 O2I,814) $11,0113 182,241 (3IJU1221 fpnjbwa 31S,141 12S,201 (180,438) 31,1860 3123,1 (43611) 6l2S,0 438,3U4 (234.101) i n 118,344 24,113 (13,511) 3815,02 405,280 281,201 2U1,421 430,082 112,835 sugip 122,U6 1,14 (114,615) 142,515 21l6l (121.211) 264,714 34,922 (2211912) fail U44,2S6 3l,191 (804,481) 301H341 451,02U 141,077 904,101 4SO117 (463,308) S"uotal 3,116,8 26U,838 (3I448,13U 31,18,117 21361,037 (113,530) 6,71I,141 1,833,87 (4,N1,870) U-- 13tmsarais 5,101,000 803,1U43 (J,1 ?)51 251,000 1,4119341 11,11,428 8,ll,0li0 2 9,6,191 23l4024Ut9 apirito Sato li9,III N42tl (234,138) 518,000 30,154 330,154 U41,000 443,0)l (3.8I11 lb doJairo 204,0 111I3 (311,13) 34,300 121,241 631,24 238,60 902,215 844.215 Su Palo ",113,1004104,470 (1,11,130) 427S,30 1,816,623 7,21,823 6,O0110,0011,812,13 5,8110133 Sbhotl 12,081,000 5,031,904 (1,027,818) 1tO,001 1088,16U0 3,018,010 12,131,000 15,685,814 l,l4114U

1 0 1,140,218 (3,I11.181) 243,600 8,435,143 8,162,743 13,183,800 11,45,081 2,312,SI) Saa Ctanti 4,2l6,300 1,U8073 (2,85,33) 2l0,1000 114619 314,861 4t,1S,000 2,01,738 (2,456,22) lior"dedo hi 13,1N6,000 1,1311,11 (8,8,11) 1323,000 S1311,828 ,1682,28 14,122,000 14#,2,151 404,6417 Subt1ta1 0,3541000 15,88 ,65,10301,2,8121) 686,00 16,56NU38 11,820,238 31,640,U00 32,111,341 331,341

=1111n at gSow 4031,1000 340,31I (3,I10,12) 0 1,351131 2,350,039 4,131,000 2,2,1$11 1 (1.131,843) -to roM d Sa 4,4011,O10 1,40I,1I3 (2,012,8171 0 830,141 03,41U 4,418,000 21335,012 (2,182.1482 kln 6,521,000 1,413,186 15,111,l11) 74,100 2167,024 2,883,124 6,513,00 41,381,113 (21,881 teielD trit Is85,00 60,854 (224,041 2,000 04,062 62,082 101,100 125,316 (62,614) Sutotl 1S,293,000 3,811,264 (1,419,16) 76,00 5,313,514 S,241,514 15311,000,1,42,183 (6811l2,18)

0a 3uit1 82,415,211 24,61,1759",8M,SAN) 5,J36,071 35,234,218 21,841,411 87,182,110 60,013,313 (71,1700,23

W-Jul-7

lons: 1l1t prdoetloa mue,adjst by siulon seetable 1.1, In,, 1). CIaI ntor i1pm

Wt: (a) nrts ir baedWo adjustid ost pali prod onfliro) laitabl 1.1, 1nu1. djtesata" n lfor hdlhaSlos td ole roInigof teat-toe ad esse-bau. (Ittbis "flaets total doage nalability lot all rop. Projectlngo otberconndltes indicattst approulnsalyISsilliou at mld bareuired for storae of tkts conuItle. for prjwtioeof totaldead and u l of srge, ste, blb --- -103-

ANNEXI Table 1.H Page 12

lpieituial 6ttag aid UrlotigInlos ?"jtt StaticS as ftorIII CondUitioes,lost

ILI S10161 356 Stll3l 10141 5t10l3t s2n 3IU31 (.2 Auu uI (b) SQIOsRMlOICI?U3 ID (3 lI?fUlI.ITIt (b)SOIlfOiR IC)1) I1O1D 41ilI LI (bl50I3WS/III0C11 lom SUo"l V71,tJ (211,13) 311,1t1 I00,lt4 I2tU,t1) 64040 1011624 113U,01) Wte 4U.06 (40,00) 12,042 HAS? (61,141) 1u1.n13 21.11? (103.2)3) isauona S,42,1,0 O 521)l 12,01S 0,34U1 lltt12t9) 190t0l4 HA,IU (i1.41U) touNt 8.165 (,11,0) 12,410 10,10) 4,491 2,010 16,00) (4.010) hr. 190,103 1,U00 (131,I) 164S,216 104,101 I2,161) 604,060 230,0S (41,004) hap lo) (601) 1,t9t 126 111512) 1,100 12t (1113) Subtotal 11,044 6 10 (6514,44)1,1161,616 309,30 (114,2111) 1,S6,122 45,6 (1,225,113)

ltlU- branIa 1,1,91,t0 1054 (lI,t,S) 704,100 300,0s1 (404,6)4) I,S1.04 400,231 (1,11I,U10) Plot 16,2m (SU13,2) 1m,44 0,04N (01,431) 1,S11,312 2,N041 11,4115,264 Coato 10,666 42,t0U (351,313) 1,042,0U4 311,121 1 ,1214) 1,440,00 03,000 (i,64,0ol) tio6Suc do lortt 114136 9N (141100) 153,421 162,2)1 (34I,212) 710S11 11121 1133,000 helb tl200,U1 I,34 (21t1,1 Nt2,6 112t,01 (131,80101)1,1II1J3 102,241 (911,39t) hsabto 1,230,511 125,315 (1,101,212)2,10,103 3)3011 (I1,41624)3.012,410 34,1134 (2,11`4,31) lbus. 011,346 24,113 (86,1) 041,110 465U,28 (143,411) 1,180,100 430,062 (1,440,030) Segipo 122,110 1,11 (114,11) 363,S5 21,30 (341,111) 419,114 34l,u (455,s11) abs 91,011 10,630 (041,321) 2,016,411 4510,2 (1,11U340) 2,0U0,4 410,11 (I,100,11l) ubtotal $,152,110 2U,I33 (,103,9212) I,J32103 2t,J36,01 (1,011,140) 11,2ll,143 2,163,011 (12,601,66)

U-t Lim Strat 1,111,319 60,143 ,l3111,4 1,030,43 (l,Ut,l134) 1,4621t2 2t,l0,511 (I.103,301 tiritoSut. 3IS,030 54,t31 (314,130) 0102,1 3",114 (603,14) 1,381,21 443,016 (139t243J itood aelro t20,00 111,030 (32,01 6l13,130 1 241 61,11t I73.13l 900215 2,136 $Uo!ulo 5,10,381" 4,614,410 (1,1J35,0)) 0,101,1" 1,651,123 (1,456,4t1) 14.11,400 1l,t1l.003 l3,166,405) Subtotal 12,2514,1t7 ,031,904 (71,2)4,03)14,320,410 1,61,O050 (31,614,42))26,S11,2t1 15,605,014 110IIS13031 g0m Ptar 13.133,015 0,141,211 ( 1 , .41742 ,121,34311,431,415 11,141,SU,1(,051,1)4) Snt Catia 4360,1)1 1,36,010 (2,1 1 110,11 114,10 4,415 1,10.21 2.,0,113 (2,01l,06) l1oStaido doSQI 14,01t,5111,133,321 (01,36,146) 10 2 0,305,l0t66,63,l14 1411,J343 14,125,1641(tS,111) lutotal 31,1l,X2 1S,l1,131 (15,01,113) 1,100,J306 11,106,26 1,015,042 31,212,163 32,111,N41 (1,01,316) cmo an0 hto Groso 1,034,418 140N,01 (3,00,46) 113,311 1,319,130 1 1203,134,104,651 2I2 ?11 (1,1t4,0) la Stoat doh1 4,115t,04 1,41,13 (3,12,141) 336,116 030,14 0l41 4.012,U424 2331,012 (2,526,512) lot". 8,1316,16 1,413,100 (51122,407) 436,103 24,01,214 2,131,131 1,L0311 4,311,113 (2101) todralDistrict 135,06 60,114 (124,641) 2,66 64,lt2 6S2,21 11,104It0ISS (S1,16i Sbtal 11,201,0123,0119,264 ( 11 911,60 1,3231114 4,301,14416,216,342 9,142,U38 (I1014,004)

0IL11111, 6$,412,01024,010,611 (40,613,111) 31,03,111 35,234,2113,141,14 06,06,1 11003,113(361,01 4,014 totalDeficit (46,161,111) (11.132642, (5IU4,3I1

02*JIte11

Seat 11161ptedoction tit uad lissionestiu*s; ClOWNdsae ligur

Rotes: (a) a on abi l.C ad 1.1, Isa 1. (b) sistls storiescpuCltp it 1915/11; See Table 2.1 -104- ANNEX I Table 1.1 milli Page 13

Projecttlonaot Siotfe sIntobi L...l, m1)2

IWl 1 Ito S t I f011611I 6 IlUt0 3 I8a I I I S t 1 I II1 I11 lwcoIn Co0LCIOILI528 ?n18i)n 53l, r1w1ol coIMCtioluu8 5llt531 n 111 Mi000llis WM815/ 5001S1/ 11011311K 50p5si/ SWIUS/ 1161015 n: StOU6t 1115luoUItli1 (llt)l I1lU,It I8 Ol 10lD OIICIIl11 111150111 iiUOl Moll011illt IIIT£10I It68813111111D glUICIt) (a) lb)(01 cit Iii lei

a 11,111 11,624 114.314IIS171) 3,001 1111 1,1119l1 2t11,613 I3,441 1 S411 I1.12l 11.1MI knt 12,142 12,11? 41,421 121.4241 4,350 10.111 u1.3611 40,0181 20,034 121,1341 10.41?110.111, iaOt14441 112.01 41J,22 N011 (41.12m 1014U 41,1111 (31,95( 61,41 3,10) 3.J15 6il 3t1111 .111 2.313 lentl 12,411 4.11 1,205 I11t41 14") 210II 51311 I.51 4,2715 t4,M)l 21130 12.11 hr 584,221t 8l,651I25,113 (1539.45 11,53S 1261ost 10,.525 110,103 24.211 W1532 (11,1411 I1t 41.611 i41,485' b a 1,1 3,648 (3,6411 342 1.025 (II.53 111 301 13411 151 1151 6Subtotal 1,11s?m 1 3 6312 SU$8111 (S21,121145,610 231.11034.2211 511.44 2Sl1.11131.022 te33.811 4,111 131,511S 135.400

#01t1111131 rauo 114,51)ltl,161 311,3011126l431J 51,011 11I01 1131,S111 L1 $1,3503.814 5)5,62s591I,131) 211.113.37.113, fliAli 18,484 64,2)1 411.243(434,1451 31,150 241,631(321,8111 518,13 284,414 (214.4141 142.2310142,210 Ce1an 1,142,114 10131 521,412 (331.3551 15I24326014U (245,414) 311.II4 11.2I# 11141IW11, 11,41 191.4131 Ito or. do Wt $55,4? 131,16 215,21tl U1t34491 1.4641 131,In (111,13) 154,136 4,385 11,368 112,113i 58.604 '5t.644' hniba 18,85 106,233 441,341 (33S.1111 31.528 223,614(111, 141 211,131 4,613140U40 (IJJS 1 l.6t2 1,124 65,563l lausubuo 1,111,51314.18 0). (143,1311 11361 445,43 (434,111211 1.3.51NS 8l112 615.39) 151.1I11 I S05 301,141 i lU.1441 llagoas 10,160 05,137 414,380 (53886431 31,301 231,110 (211.1131 131,340 121 410.610 1460,541 1 13) 230.315 i230,206' Sergule 26,545 1t.813 114.213 (114.410) 5.215 13.136 (16,1611 121169 81.1$ 1l81 31,142 (0,5421 bia 3,014,411tStl2013,4 1,001,O33 (1t81N 1 51130 503,611 1444,4)1UIS0110 41101 41n,51 (10i1ltN 4,138 246,255 4lU.11l Subtotatl 9152.71 1,208,1184,6)1,392 13,48,32141 25,1t2 2,345,68 (2,01115324 5.152,160 05,401 2,M.312 (3,140,71) 11,444 1,463,11011,45Jt48

situSGers J,N1,SU4 1,715,11, 1,115,t12 (118.1131203,254 141,011 (6144,431 Ul.31S SS,J141.105.615 (l.4lO.S6S1 M4.O 1,411,t5tIt214,054 lplilitoOnto n12250 15,568 4WH (311.5111Il,11 4U0.015 (101,215 381,00) 43,434 114.500I11,0441U 11,2 m 11io.Jdo etto 181.53 2)6,1 334.110(31,1621 161.130(161,1851 214,00, $1,544 13,106 (44.4581 51.110 .51.1101 SuaPahlo 9.101,1915,4U2.5 4S153.555 10401 6U13,8122,316,111 (l.11021051 5150 l3892,14,311 3,8t115115 811.2S 14410 111,431.)1 (1.Ill.6811 Subotil: 14,32Il1111.6111It41 7,160231 4152901 144,1183,510,11 (2 US .1281 12.254111t13111,524 612l1,14 (2,5l 8,1111 61 S1,143.613.619 i2,311.1931

han 4,211.4014,143.110 2,132,201 2,l04.510 161,231 1,S0I,tl0 303,3831 13.12S30156.521111 6561.53l 131.8211 1,136.5114 3.280.11 11.444,1151 lautsCatriaa 7110141 1S.t2291 35,011 243.13U Wi2ll 111,541 12.3301 4,1360,631t104.08 2.110,316 11 1,116301 4t14321.090.151 I 811.66 Ilo 6r. doStl 101,402211,1.316 I5SI1012.343.415 1,5311,08 1S1,451 11:14,439 14,410$610,410,300 1.031,211 1,451,020 005.444 3,51.64l0 i2.1114,Ii Subotal: s.810,31 8,231,3052,045,191 5S311.141 23511345 1,422,S1) 1 U36,1 31,162,36116,1404 3.011I 11,134 222,0S6lI,51,t 1,1N),1 5,0133,911

cwa m MItoor. do Sol 331,51 1,1N4,55 lU8red 8JI,211 255,343 84,144 111.111 4.51254I 165,5413,33.134 (1.411,3151 114.Ul 1U131,4121156,9131 lattoomso .156,31? 122,57t 11,101 645.301201,13 31,014 1l1.010 4.038.4181.116U511 32,11.39 (142, 111 335.5141.009.620 '61.0461 l6oi 431,1132,216,581 21,018 1 I,l.U411 151.31 101,8406$42.019 6.535 1 1,013,4803.261,043 12 031 331,1381,833.122 (1.2t4.1t i lastr.I.d. 21,04 31,854l ,342 24,313 21654 s111 30,13 10,0 30,31 12540 (1t,1l1320.3111 48,58 (5.121 Subtotal: 131,83014,1 ,323 46115953,601.400 l 23J546 3253,581102.541 1.UI20,012.135.156 t.64SNI06 14,10,6S11 t 13.180 3.131.253 f2.15.163S

t0lL 31,413,11121,381,1111 15 9146,S15,64,1111 1 4.840,103 1,0131,1 (3,032,516 5,4712,7012232t11.111 32,136.435 il0.,0.5161 4.413.111 16.368.318 11.Ul.SSS01 tOtlLIIICI (4.261,351 15,40l9160i 1II,60S.4261 ill.7 M11

Sat: Storgedo ita Ite CIIJIZIN;laslsit projections (tan11 kwt: S hI isatitodttiele, It a blb-- bI I _sauto beftS et rotdoctlot it) slsawnto be 25Sof ProietIot. -105- ANNEX II Page 1 of 7

BRAZIL

AGRICULTURALSTORAGE AND MARKETINGREVIEW

THE STORAGESECTOR

A. Overviewof Brazil'sStoraAe Subsector

StorageCapacity and Location

1. Total usable storage capacity for agriculturalcommodities iin Brazil is 60.1 million mt, according to 1986 CIBRAZEM (FederalStorage Companyof Brazil)figures (see Table 2.A). These figuresare based on inter-yearupdates of a comprehensivesample of storagefacilities first undertakenin 1974-1976. Gross figures show a staticcapacity of 66.4 millionmt, but CIBRAZEKestimates that about 6.35 millionat are in fact marginaldue to physical condition, location or other uses, and thus are useful only in emergency situations.CIBRAZEM is now carryingout a new comprehensivecadastre of storagefacilitie^. Based on 75? of the returned questionnaires,total nationalstorage capacity in 1987 could be as high as about 70 millionmt. (The large discrepancybetween the two estimatesis due to (a) CIBRAZEH'suse of a limitedsample to estimatethe 1986 figures; and (b) simpleextrapolation from the 1987 surveyreturns, which may not accuratelyreflect real storagecapacity.)

2. Comparisonof CIBRAZEM'saggregate figures suggests a gross storage shortfallof some 10 millionmt in 1985 (Table2.2, main text),based on a simplecomparison of capacity and production figures. However,these aggregatefigures mask two important gapst shortagesof storagetypes and state-level shortages. Brazil's current estimated shortage of bulk facilitiesis 26 millionmt, and with some exceptions,every regionis in deficit. Comparisonof bag facilities and needs shows a marked regional imbalance,with an aggregate 'excess' supply of some 15 millionmt. In reality,of course,excess storage capacity in Rio Grandedo Sul cannot compensatefor shortagesin the Northeastdue to very high transportcosts.

3. On a regional basis, the South and Southeastare comparatively betterendowed with storagecapacity, especiallybag storagecapacity, than other regions. Together, they account for 80.0t of Brazil'sstorage infrastructurecompared to 70.0? of total production of agricultural commodities. In comparison,the Northeast accountsfor 14? of production, but only has 4? of capacity. The Northeastis particularlyshort of both bag and bulk storagecapacity, while the South and Center-Westhave excess bag space. Yet these regionswith excessbag storesare also the ones most urgentlyin need of bulk facilities. The conditionof many bag storesin these regions, combined with technical problems, prevents widescale conversionfrom bag to bulk.

4. Regionalendowment of storage capacity is closelyrelated to crop developmentand marketingpatterns. In the past, the emphasison production of commoditiessuch as coffee,cotton and sugar led to extensiveinvestment in bag storage, especially in the major producing states (Parani,Sao Paulo). As productionpatterns shifted to grain,there was new demandfor bulk handling facilities. In addition, new areas came into grain -106- ANNEX II Page 2 of 7 production,both as the South shiftedfrom coffeeto soybeansand maize,and as the Center-Weststates were opened up. In the Northeastin contrast, grain production is concentratedon small farms, many of whichwere producingfor own consumption,and thus demand for off-farmstores has mainly been limitedto cash crop (bag)facilities.

StoraaeLevels

5. Thereare five levelsof storagecommonly used in Brazils (a) on-farm; (b) collection; (c) intermediate;(d) terminal; and (e) strategic. Brazilhas one of the lowest rates of on-farmstorage among major agriculturalcountries: only 3? of totalproduction is storedat the farm level. This is in sharpcontrast to the US, for example,where 60? of storagefacilities are on-farm. Statistics for on-farmstorage are not good: data on farm-levelstores are combinedwith other privatestores (such as agro-industrialstores) in CIBRAZEM's cadastre, and thereare no other major sources. Based on this estimate, thereare perhapsup to 1.7 million mt of on-farmstorage capacity. It is likelythat a high proportionof this is concentratedon small farms, particularlyin the Northeast,where productionis storedfor own consumption. Reasonsfor such a low level of on-farmstorage include: Ci) need for off-farmprocessing services; (ii) restrictedrural investmentcredit; (iii) costs in relationto benefits; (iv) emphasisof official programs on cooperativeand commercialstorage; (v) shiftingcrop production,requiring differenttypes of stores;and (vi) limitedincentives for farmersto hold stocks.

6. Collectionstores are small to medium scale facilitieslocated in the productionareas, used mainly for crop assemblyand initialprocessing as the first stage in marketing. Because of limitedon-farm capacity collectionstores are especially important for crop dryingand cleaning. Duringthe 19709,Government support for variouscredit programs led to the expansionof investmentby cooperativesand public sectorstorage companies in collect'.onstores. Over two-thirds of Brazil'scapacity (44.1 million mt) are collectionstores; roughly half is bag storage(21.4 million mt) and half bulk (22.7million mt) (See Table 2.A). In the major agricultural productionregions, nearly three-quartersof storage capacity is at the collectionlevel. Over 0S of the collectionstorage capacity is locatedin the Southeastand the South. Collection stores tend to have seasonal patternsof use, exceptwhere there is doublecropping or where Government agenciespurchase and store stocksat the cooperatives.

7. Intermediatestores serve mainly as transit and largerassembly points. Ideally, they are situated near major transportinterfaces, or between production and consumptionpoints. Intermediatestores take advantageof economiesof scalein storageconstruction. Turnover should be high, althoughin practice, some public sector intermediatestores hold stocksfor over 6 months. Total capacity of intermediatestores is 9.3 millionmt, of which 4.8 million mt is bag and 4.4 millionmt bulk. Intermediatestores make up about 152 of nationalcapacity; on a regional basis,they accountfor 1lO (in the North and Northeast)to 23? of available capacity. Over half of nationalintermediate storage capacity is locatedin the South. -107- ANNEX 1I Page 3 of 7

8. Terminalstores are facilitiesdesigned for end-userstimporters or exporters,processor' or consumers. In Brazil, a largeproportion of terminalgrain storagecapacity is held by agro-industries,in particular soybeancrushers, feed processors,and rice mills. In addition,there are terminalstorage facilities at the major ports, mainly for exportsin the southernstates, and for imports in the Northeast. Total terminalstorage capacityis 6.9 millionmt, of which 2 millionmt is bulk and 4.8 millionmt is bag. Two thirdsof this capacityis locatedin the South and Southeast, which also contain most of the agro-industriesand severalmajor ports. Terminalstores are neverthelessan important percentageof total storage capacityin the Northeast, largely because of traditionalexports and importsof major foodgrains. In contrast, the Center-West,with no ports and few agro-industries,has very limitedterminal storage.

9. Government plans to establish a strategic stock program, as outlinedin the several policy documents, have led to discussionsof the need to establishstrategic storate facilities. Currentlty,there are no separatestrategic stock facilities in Brazil; Governmentstocks are held in rentedpublic and privatesector space. Proposalsfor these facilities, albeitlimited to date, range from holding stocksin producingareas, to terminalstores in major consumptionpoints. The issue of strategicstocks is furtherdiscussed in Annex IV.

StorageOwnershiD

10. Most (802) storage facilities in Brazil are privatelyowned and operated;Government agencies only own outright about 20T of capacity. However,Government agencies are also major renters of storageat all levels,through crop purchaseprograms (AGF),stock holding programs (IBC), and supplyschemes (COBAL) (Annex III discussesthe institutionsinvolved in storagein more detail). About half of Brazil'sstorage capacity is not for publicuse; this includes storage held by industry and marketingfirms (althoughBrazil's small percentageof on-farm storageis also includedin this total, it is not significant;)and by the Coffee (IBC),Sugar (IAA)and Rice Institutes. Of the storage capacity availablefor publicuse (i.e. availableto farmers,traders or the Governmentto store produce),half is owned by the cooperatives,nearly a third by public storageagencies, and only one-fifthby publicgeneral warehouse companies (armazens gerais).

11. In terms of type of storage, 552 of bag storageand 442 of bulk storageis for privateuse only. In the Center-West,however, there is a much higher investmentin publicallyavailable storageof both types. This reflectsthe importantrole of the general warehousecompanies and state storageagencies in these states,and the limitedprocessing infrastructure.

B. StorageTechnology

12. There is a high level of competencein Brazil,both with respectto constructionand operationsof agriculturalstorage. Construction,at least that of the major manufacturers, is of internationalstandards. Rnowledgeablestorage operators can be found, althoughtheir numbersare limited and are definitely insufficient. Technical issues relate mainly to -108- ANNEX II Page 4 of 7 the need to expand trained personnel and technologicalresearch; to establishtechnical standards for construction;and to look more closelyat the economicissues linked to technologyand location.

StorageTYDes

13. There are three broad types of storageconstruction used in Brazils i) conventionalbag storage; ii) silos; and iii) Qraneleiros,horizontal bulk storagefacilities. In peak harvest season,grain is also storedin convertedbuildings, in piscinas(openair emergencystorage; para. 23), and in the open on wooden platformscovered by plastictarpaulins.

14. Warehousesare usuallyone-story sheds in which jute sacks of 50 or 60 kg (depending on the commodity) are stacked. Older traditional warehouses have a minimum of equipment, and unloading, storing and dischargingare done mainly by manual labor, sometimes assisted by a forklift. Use of manual labor increasesthe costs and loadingtimes for bag stores. Modernwarehouses are built of noncombustiblematerials and have concretefloors, brick walls, and metal or concrete roofs. The larger units,particularly those which process coffee, are often equippedwith precleaners,driers, bagging machines and conveyors. In some instances, sackwarehouses are used to store grain in bulk, usuallyby piling grain in the center (thewalls are usually not capableof resistinggrain pressure). In general,however, conversion of bag warehouses to bulk facilitiesis difficultand expensive.There are also temporarybag stores,constructed of PVC sheetsover a metal frame;these are easilyassembled, and often used by the public sectorstorage companies to cope with storageemergencies.

15. Warehousesare used when commoditiesare handledin sacks (Table 2.1, StatisticalAppendix, lists the major commoditieshandled in sacks). Coffee,cotton and milled sugar are the major crops handledby warehouses. Among grains,dry beans, due to the multitudeof differentvarieties and grades,and processedgrain (seeds, milled rice) are not suitablefor bulk handling. Thus, warehousesoften serviceprocessors and retailersin major consumptioncenters.

16. There is a range of silo designs used throughout Brazil,as Brazilianshave been avid followers of designchanges in North Americaand Europe. Silo sizes range from small, on-farm units,to 200,000mt silo complexes. Steel silo capacitiesrange from as small as 45 mt to over 6,000 mt. Much of the expansion of silo constructionhas occurredover the last decade,with the shift to bulk handling and the incentivesof subsidized creditprovided by PRONAZEH. Concrete silos can be built to any size and standardscommonly used. In general, however, silos have provedmore expensiveto build than flat bulk storage (see Annex V for comparisonof silo and flat storagecosts). Thus, silos tend to be used in areas where rapid turnover is important, where land costs are high, and where longer- term storage of commodities is expected. Silos are also used for on-farm storage, however, because of ease of loadinglunloading and availability of small-scaletechnology.

17. In the late 1960s, Brazilian engineers began to realizethat conventionalsilos were unnecessarilyexpensive, at least in the wheat- soybean producing areas. Domestic wheat and soybeans have no grade differentiationand, therefore, do not need storage in severalseparate -109- ANNEX II Page 5 of 7 bins, but can be storedin large single units. In addition,in most rural areas,land pricesare not a constraintto extensivestorage construction. Thus, designsfor flat bulk storage(araneleiros) were developed. This type of bulk facilityis a large single storagebin, with a conicalhopper, dug into the ground in a V-shapeand covered by a metal roof. Such units may hold 20,000-60,000mt of grain. Constructionand operatingcosts are lower than those of silos,and constructiontime is shorter. The units are fully equipped-with mechanized grain handlinginstallations, including fumigation equipment.Where underground conditions do not permitexcavations, bulk units of a similarbasic designare built in concreteabove the ground. The advantagesto araneleirosare their cost and abilityto store grain under controlledconditions. Disadvantages ares (i) the inabilityto storemore than one product at a time; (ii) the impossibilityof keepinggrades separate;(iii) the relatively slower unloading time; and (iv)maximum limitsof 6-9 months for storinggrains before deterioration begins.

Construction

18. There are no legal standards for warehouseconstruction in Brazil. CFP and other Government agencies which rent storagespace have certain minimumstandards and criteria for selecting storagefacilities, but when facilitiesare severelyconstrained (as in the Center-Westor in abundant crop years),these agencies are forced to acceptsubstandard or emergency stores. One problem is that the lack of standardsfor on-farmstorage constructionmakes it difficultfor farmers to qualifyfor GovernmentCrop financingprograms if their crops are stored on-farm, ratherthan at a cooperativeor generalwarehouse.

19. Manufacturingcompanies for bulk warehousingfacilities in Brazil, both silos and araneleiros,are concentratedin the southernpart of the country,particularly in Rio Grande do Sul. Historically,the South has been the major grain producing area, and technologically,is the most advancedpart of the country. About half the storage is built by one company,with recentsales of over US$50 millionyearly, and a capacityof about 900,000 mt per annum. Total national constructioncapacity, extrapolatedfrom these figures,is about 2 millionmt per annum. Given the currentdomestic shortfall of bulk storage capacity estimateat some 25 million mt, production capacity is currently insufficientto relieve constraintsin the short run. In the medium term, Brazil'sdynamic industrialsector could be expected to respond fairlyquickly. A second major constraint,however, would be raw materials,particularly galvanized steel sheetwhich alreadyhas been in short supply.

Machineryand Eauipment

20. Due to the high humidityin most grain producingregions at harvest time, cleaningand dryingof grain is essentialfor most storageoperations, includingon-farm storage. The Brazilian standardis 13-14Zhumidity for maize, and 12 impurities.Most bulk warehousesand silos are equippedwith mechanicalpre-cleaners and hot-airdriers. Dryingis especiallyimportant to many producers to cut down humidity and thus transportcharges, and provisionof these servicesis the major sourceof revenuefor most storage providersat the rural level. Many warehouses also provideprocessing servicesto enhancerevenues, including rice, maize, and feed mills,dry -110- ANNEX II Page 6 of 7 bean polishers,and weighing and packing equipment. Well-managedstorage units have laboratory facilities to test commoditiesand to perform classification.

21. Most manufacturersprovide a range of auxiliaryequipment, from grain cleanersto conveyor belts and elevators. The more sophisticated dryingequipment is usually produced only by the larger,more technically sophisticatedmanufacturers. Continuous driers are producedonly by a few companies. Crop driersare manufacturedin a range of sizes,from 8 mt/hour to about 40 mt/hour (based on reduction in moisture from 18 to 13?). Integraltemperature and humidity controls systems for silo complexesare manufacturedlocally, to internationalstandards. operations

22. Informationon the performanceof the storageindustry is limited, and there is no consistentsource of data on storagelosses. Most cases of deficient operation of silos and warehouses are said to be due to insufficientlyknowledgeable personnel. This is often due eitherto a lack of experienceor poor training, or to a change in the type of product stored. For example,in regionswhere soybeanis a new crop, this has been a problem. The high oil and protein content of soybeans make them particularlyprone to storage spoilage. Some of the largerstorage complexes are well-run, and have low losses. Smaller facilities, particularlythose run by state storage companies,have experiencedmore problems.

23. Little informationbased on actual observationsis availableon levelsof storagelosses. Commonlyquoted figures are on-farmlosses in the area of 102 (primarily for small farmers,particularly in the Northeast). COPASA (statestorage company of Parana)claims state-wide losses of 15-25? for maize and 10-12?for soybeans,but these appearto includelosses due to drying and cleaning (which are not commonly counted as part of storage losses). CFP operates on the assumption of 1.82 for technical losses and 2t humiditylosses for storageof Government-ownedstocks. A major cooperative in Paranaassumes 32 technical losses, while ANAG (Associationof General Warehouses)assumes 5.5Z for technicaland humiditylosses. It appearsthat problemswith large losseshave essentiallybeen due to poor condition(or completelack) of storage facilities,particularly on small farms,or to storinggrain in open air Discinas('swimming pools": constructed with walls of baggedgrain, with bulk grain in the center,used on an emergencybasis) or open air piles of bags in abundant crop years. These lossesare primarilydue to inadequateavailability of standardfacilities, rather than low technical knowledge of operators.

Staffing,Training and Research

24. Brazilis beginningto build up a cadre of solid technicalstaff in the area of agriculturalstorage. However, with the rapid expansionof grain productionand shifts to bulk handlingfacilities, availability of trainedtechnicians is a constraint,both at presentand clearlywith any large-scaleexpansion of storage facilities. Technicalstaff constraints appearto be particularlyfelt by the cooperativesand publicsector institutions,whose salariesare less competitivewith the privatesector. -111- ANNEX II Page 7 of 7

25. The primarytechnical training institutionfor storagetechnology is the NationalCenter for Storage Training(CENTREINAR), affiliated with the FederalUniversity of Vicosa (Minas Gerais). The Centerwas foundedin 1976 by CIBRAZEK and the Ministry of Agriculture,and carriesout both researchand trainingin the area of storagetechnology. The Centeroffers a number of storage training programs, with particularemphasis on short term courses,and trains technicians from the public and privatesector, includingcooperative personnel. Training in marketingand storagecourses for the extension services has been supported under the Bank-financed NortheastRural DevelopmentProjects. With additionalsupport, training activities could be significantly increased. Two particular groups requiringtraining are extension staff (especiallyas on-farmstorage has been relativelyignored by the extensionservice) and analystsin commercial banks responsiblefor evaluatingstorage financing proposals.

26. CIBRAZEHis also establishlnglimited trainingfacilities at its silo complexin Ponta Grossa (Parana). COBAL and EMRATER hold some storage trainingcourses at the state level. Technicianshave also benefitedfrom overseastraining, particularly in the UnitedStates.

27. Trainingof producersand other small scale storageusers remains limited,however. Producers are eligible to go to trainingcourses in Vicosaand at CIBRAZEM. However, extension and outreachwork on storage facilitiesand storagetechnology remains extremelylimited. This may have been a contributingfactor to Brazil'slow level of on-farmstorage.

28. Storageresearch is coordinatedby CIBRAZEM. The most important institutionsdoing storage-related research are CENTREINAR and ITAL (Instituteof Food Technology)at the Universityof Campinas,Sao Paulo. At CENTREINAR,research topics range from small farm storageconstraints to developmentof new storage technologies. Research in some areas, particularlyeconomics, has been lacking,however; significant needs include researchon: a) storagelocation; b) optimal scale;c) economicsof bag vs bulk handlingand storage; d) options for transformingbag facilitiesto bulk; and e) technicalspecifications for storageunder local and regional conditions. MUIL Arital ttrn ad Inketlagant" _u"of Cap,wttngs tatistics J1i - at)

1. slua c 1cmIT TM

316 5101161 "in us ML1 Mil51036M t A011 1011l 1103163 C Iwo cuwonu ti In tuL mmn aomu IitUIAtill TUIL STOIUt CO=li0TIU tI"UUtK tff3111L toTL

hutS 32,62 45,6 3,1 m3,5l 23.111 4,111 34,33 66,540 29,03 "4 1 123WM 4U,UI U.rtbeu.t 1,233.113 2.1 M 236,31 6,U4 11,444 165,611 26,6 1,203,51 M1616 I,6,4 2.3,1 hstbgut T,6,i1 1441,916 2,6,019 1O,63.lS 3,616,524 671,"4 TO4,46 S,3I,16s 11,211,665 1,61,4 2,31,48 IS,T ,

th 3,2,X'5 2,351,345 I,64, 12,260,33 16,604,019 2,85,510 1,O50,S251,11,114 24,2 .04 5,215,915 2,115,2 n.,111,3 Cemarlst 4.6,323 1,235,546 21,5 S,AU,4 2.S35,O4 63,090 29,318 3,19,354 ,002,26U 2,08,5" 41,12 9,142,631 TOTmL 21,4O,11 4,6O.103 4,t65,2 31,32,484 22,6t2,06.9 4,413,119 2,02G,4 29,105,588 44,01,t12 9,253,322 $,1156,53 "63,12.

II. STUNK06lWp

I*1A sI 1 1 A ItI IL ITOI 0 R AO T t A L t I01 i I min 1n11111 m cmt m1i3 n3cm m1n m cm 193Ic m cm m21tm11m cm Piuc m 0w braS 111,358 29.52 2M.23t 1.5 6,540 100.33 0 0.33 163,910 39.6 2MM,231 60.4 hutheast 1,M5 4.1 1,22U,I1N 11.92 134,U5 68.71 64,124 31.n 1,321,398 50.22 1,312,303 49.62 Swutnt 5,658,16 55.U2 416,8634 45.6 2,11,6s6 58.32 2,102.048 4I.1 8,16,112 56.1 SA6,69,682 M 4.9. th 1,?,l 3. 4,542,152 31.02 6,486,421 42.62 11,4,U65 5. 16,204.502 50.42 15,361,637 4.62 ° Cu valut ,113,264 .3 3,195,213 60.33 l,l1 WU 2.62,69 10.22 3,264,33 1 35.12 5,311,916 M.3A tOUL 16.9,U 54.n 14.3.615 4.3 12,611,14 44. 1.29S44 54. 2M.10.613 49.52 38,323169 58.52

me (3Ma: -113- ANNEXIII Page 1 of a BRAZIL AGRICULTURALSTORAGE AND MARKETINGREVIEW

PUBLIC SECTORINVOLVEMENT IN STORAGE A. GovernmentIntervention in the StoraxeSubsector

Backaround

1. A key issue in developmentof Brazil'sstorage and marketingsystem is the respectiveroles of the public and privatesectors. Over the last fifteenyears. the public sectorhas increasinglyintervened in agricultural storage, discouragingprivate sector investment,except through the cooperatives.Recent Government policy statements seek to redefinethe public sectorrole to one mainly of regulationand managementof security stockson the part of CIBRAZEM. Nevertheless,some Governmentplans call for significantexpansion of public warehouse capacity and upgradingof existingfacilities. The administrativecapacity and poor performanceof publicsector institutions, as well as the constraintson public finance, suggesta re-examinationof their involvement.

2. The earliestknown Government regulationsof agriculturalstorage in Brazilare somewhatover a centuryold. In 1869 a decreewas issuedthat set standardsfor warehouse constructionin ports, and at the same time introduceda system of legally recognized,negotiable warehouse receipts (warrants).Based on the experience with coffeestorage, mostly in export ports such as Santos,a generalwarehouse law was promulgatedin 1903 (para. 5). It was not until 1956 that the Governmentfounded a public-sectorowned networkof storagefacilities, beginning with the constructionof warehouses and silos to supporta national wheat productionand marketingprogram and formationof an executingagency in 1959. In 1961, anotherstorage-related agencywas establishedwithin the Ministry of Agriculture,charged with planning,coordination and execution of Government storagepolicy. These two agencies were merged in 1972, becomlngCIBRAZEM (Comnanhia Brasileira de Armazenamento), the presentfederal storage agency (para.13). CIBRAZEM's mandatewas and remains broad, including responsibilityfor all aspectsof agriculturalstorage.

3. Government'sconcern with agriculturalstorage fits into the broadercontext of national food policy. Governmentintervention in food supply issuesin Brazilhas a long history:as early as 1918, attemptswere made to controlstocks of food. The 1937 constitutionlegitamized market interventionby the Government,and the subsequentconstitutions of 1946 and 1957 broadenedthe justificationsfor actually doing so. CIBRAZEKis thus one importantagency for implementingGovernment storage policy within the frameworkof national food supply policy. While CIBRA2EMis the major agency for storage issues, other parastatal institutionsare also major users and ownersof storagefacilities (para. 9).

4. Apart from the legal justificationsfor Governmentintervention in storage(based primarily on corporatistprinciples), there are other,quasi moral reasonsusually advanced. The more importantof these are: a) private entrepreneurshipis thoughtto lack the resourcesor incentivesto enter the sector (particularlyin frontier regions); b) speculativehoarding is preventedwhen Govornmentowns storagefacilities andlor adequate stocks; c) trade monopolizationby intermediariesis made impossible;and d) producers' -114- ANNEX III Page 2 of 8 marketpower can be improved. In actualfact, however, Government policies have done littleto meet these objectives,and have oftenhad the reverse effectfrom the originalintention.

Legal Framework

5. Brazil's general warehouses ore regulated by the General WarehousingLaw of 1903 (Lei 1102). All enterprisesoffering storage servicesto the public must be registered under this law. Among other things,the law providesfor: a) non-discriminationamong clients;b) public posting of tariff schedules and services; c) regular inspectionof warehouses;and d) issue of negotiable warehousereceipts (warrants) as a basis for loans. The law specificallyforbids trading, processing or other activitieson warehouse premises, other than storing clients'goods in identifiablelots. This clausewas designedto preventfraud on the part of warehouseowners. General warehouses are inspected and licensedby the local CommercialCouncil (Junta Commercial),which also has responsibility for inspectingwarehouse documents and stockmovements.

6. The existingwarehouse law provides a firm basis for regulationof the industry,but there are some problems. One issuewhich has been debated for a numberof years is the prohibitionof warehousesfrom engagingin processingor marketing. Because of this restriction,it is argued,some warehouseshave experiencedlow occupancy rates, which in turn make their financialviability tenuous and affectsdecisions to invest. In the United States,for example,it is common for general warehouses,such as grain elevators,to engagein grain marketing and input supply as well as to providestorage, in order to maximizereturns to storageinvestment. On the other hand, many storage companies in Brazil establishseparate trading companies - or trading concerns, including cooperatives,establish registeredstorage companies. Thus, the actual impact of the law may be less than commonly believed. It appears that other factors,such as ceilingson tariffrates, high interestrates and unavailabilityof medium- term investmentcredit, and competitionfrom publicstorage facilities may play a greaterrole in discouraginginvestment in generalwarehouses.

7. Anothermajor issue is the relativellweak supervisionof general warehouses.The need for inspectionis especiallycritical under the warrant system,to ensurethat goods exist and are being held under good physical conditions. Warehouses are inspected at registration,then only sporadicallyafter that. Although Commercial Councilshave responsibility for supervisionand inspection,they often do not have the staff or resources,especially for regular physical inspection. Other agencies provide partial inspection:Government agencies for their own stocks, commercial banks extending credit, or tax collectors. However,this supervisionis not autonomousand rigorous,is uncoordinated,and has little legal supportor recourse.

8. Althoughwarehouses have the right to issue warrantsunder Lei 1102, the warrantsystem has fallen into disuseover the past few decades. Reasonsgiven includesi) lapse in subsidizedcredit to financestocks; ii) fall in demand,due to competing(and often subsidized)Government programs, such as the rural promissorynotes and EGr (para.4.25); iii) problemswith fraud and poor classification;and iv) reluctance of commercialbanks to finance, without better guarantees of product quality supervision.In -115- ANNEX III Page 3 of 8 additionto problemsof supervisingwarehouses, the law providesfor only minimalpenalties for abuse. PublicSector Institutions 9. Multiplepublic sector institutionsare involved in the storage subsectorin roles ranging from providing storage services to setting policiesand prices,a factor which has causedproblems in formulatingand coordinatingstorage policies. Major institutionsare listedin Table 3.1. Storageservices to both the public and Governmentagencies are providedby 18 parastatalcompanies at both the federal and state levels. In addition to CIBRAZEMand the state storage companies (discussedbelow, para. 13), storagefacilities are ownedand operatedby AGEF (RailwayGeneral Warehouse Company), IBC (BraLilianCoffee Institute), IA (Sugar and Alcohol Institute),PORTOBRAS (BrazilianPort Authority),and COBEC (Brazilian TransitStorage Company). Governmentagencies are alsomajor depositorsin both public and private sector warehouses. The largest users in the agriculturalsector are CFP (under the Minimum PriceProgram) and CTRIN (wheat).Other largeGovernment depositors, mainly under food distribution and marketingprograms, are SEAP (Secretariatof Priceand Supply- para. 11),COBAL (BrazilianFood Company), INAN (NationalFood and Nutrition Institute)and PAE (Foundationfor StudentAssistance).

10. Severalagencies located in the Ministriesof Finance,Planning and Agricultureare involvedin settingstorage policy in aaditionto the inputs of the major publicsector suppliers and users of storage. SUNAB (National Superintendencyof Supply) was establishedin 1962 in the Ministryof Agriculturewith wide discretionarypowers to set pricesat the wholesale and retaillevels, to establish import and exportquotas on agricultural products,to promoteinvestments in agriculturalstorage and maintenanceof commoditystockpiles, and to intervene in the transportand commercial sectorson supplyissues. SUNAB's roleswere considerablymodified in 1979 with the creationof SWAP in the Ministryof Planning,which centralizedall pricedetermination authority, and now SUNAB essentiallypolices price controls. SNAB (NationalSupply Secretariat) in the Ministryof Agriculture is responsiblefor inspection,supervision, classification and grading, technicalstudies, and carrying out decisionsof CINAB (Intenministerial Councilon NationalSupply). CFP, CIBRAZEMand COBAL are administratively subordinateto SNAB. 11. SWAP playsan important role in price control,although in the 1980sthus was done indirectlythrough 'gentlemen'sagreements' and stock buyingand sellingoperations by SEAP. With the adventof the CruzadoPlan in early 1986,CIP (InterministerialPrice Council)was establishedin the Ministryof Finance to administerprice controlsthroughout the economy. Theseprice controlswere largelylifted in early1987, but reimposedon a short-termbasis in June 1987. CIP retains a watchful eye on price increases(including storage tariffs) and has occasionallyintervened. The Hinistryof Financealso plays a key role throughthe allocationof credit to storageprograms, interest rate policyand other financialissues.

PublicSector Storage Services

12. Concernwith food supply issues has led the Governmentto create parastatalstorage companies at both the federallevel (CIBRAZEM)and state levels. AlthoughCIBRAZEM's role was initiallydefined as a coordinating -116- ANNEX III Page 4 of 8

and planningone, in 1974 this role was expanded. Today CIBRAZEMowns about 52 of nationalstorage capacity, and the variousstate companies(in whic~h CIBRAZEM holds stocks) another 7X. In comparison,general warehouse companiesonly hold about 102 of total capacity. In terms of publicly availablecapacity, however, the public-sectorstorage companies hold nearly a quarter,making them an importantprovider of storageservices. Much of the public-sectorstorage capacity is in fact rentedto Governmentagencies, notablyCFP, CTRIN,and COBAL,at subsidizedtaitff rates. Extensive use of publicstorage facilities by publicagencies has been a major forcekeeping publicstorage tariffs below market costs.

CIBRAZEM

13. CIBRAZEM(Brazilian Storage Company) is the most importantpublic sectoragency responsible for storageissues. It was officiallycreated in 1972 with the merger of two federal agencies responsiblefor storage programs (the ConsultativeCommission for Silos and Warehouses and a Ministryof Agricultureagency responsible for storageissues). CIBRA'EM's originalmandate was largelyconfined to storageplanning and coordination. However,with the initiationof PRONAZEM in 1974, CIBRAZEMwas calledupon to take a more activist role, particularlyin expandingpublicly-owned storagecapacity. CIBRAZEM did this throughtwo means: throughexpanding its own storageinfrastructure (mainly in storagedeficit areas, including the Northeastand Center-West),and through encouragingthe formationof state storagecompanies, in which it often had financialparticipation.

14. CIBRAZEM'scurrent capacity is approximately3 millionmt, divided among about 630 units, representing5Z of total nationalstorage capacity, and 102 of total capacityavailable to the public. CIBRAZEM'amarket share differsmarkedly among regions, howevers CIBRAZEMrepresents only between 0.042 and 1.8X of capacityin the South,but 76.5Z of capacityin Rondonia and 912 in Roraima. CIBRAZEM's policy has generallybeen to construct storesin areas which are judged to be unattractiveto privateinvestment, largelythe frontierareas of the North and Center-West,and the Northeast. In turn, however,this policyhas had an impacton encouraginginvestment in this regions,due to CIBRAZEM's market dominance and its low subsidized rates. In recentyears, CIBRAZEM has been divesting some or all of its storagecapacity in certain states to state storagecompanies (this was recentlydone in Rondonia).

15. Officialintent on CIBRAZEM'sfuture role in grain storageremains unclear. Although Government policy statements have outlineda role of coordinationand planning for CIBRAZEM, a recent decree (Normative InstructionNo. 14, March 31, 1987) retainsthe company'sbroad mandateboth to coordinateand to providestorage services. Responsibilitiesinclude: i) directparticipation in the elaborationand executionof Governmentplans and programs for agriculturalstorage, especially the constructionand operationof strategicstores; ii) regulationof agriculturalmarkets; iii) interventionin a supplementary fashion in areas with insufficient commercialstorage or competition;and iv) managementof the nationalsystem of storage. To fulfillthese functions,CIBRAZEM may functionas a general warehousecompany, issue warrants,coordinate and participatefinancially in state warehousecompanies, and survey, supervise and inspec.all storage units in the country. CIBRAZEMwould be reorganized to meet the demands of its new roles: developingproposals for privatizationof public storageand -117- ANNEX III Page 5 of 8 increasedcommunity storage; emergency and temporary storagemeasures in deficitareas; coordinationof Government stocks; and improvedstorage management,through a national cadastre of storage,evaluation systems for stock quality,and researchand training.

16. Institutionalweaknesses coupled with financial problems have constrainedCIBRAZEM's impact on storage policyand the storagesubsector. Within the company, organization and distributionof functions make managementdifficult. Key difficultiesinclude: a) politicalappointment of the presidentand directorsby differentauthorities, with littleregard to qualifications;b) lack of a well-definedand understoodcompany policy to guide managers; c) poor reporting relationships;d) difficultiesin attractingand retainingqualified staff; and e) low salaries,leading to corruption(especially in the area of classification).Although CIBRAZEM's managementis highly centralized,CIBRAZEM's field operationsare spread throughoutthe country. There is a lack of consistencyin operationsand policiesacross states, and tensionsexist betweenfield representativesand politically-appointedregional coordinators, and headquarters.

17. CIBRAZEH's financial performancehas been poor, in large part because of its low tariff structure and lack of efficiency in many installations(due to overemploymentand low throughput).In 1985, CIBRAZEM handled3.8 millionmt throughout its warehousenetwork, giving a turnover of only 1.3. CIBRAZEM's occupation rate in 1986 was only 552 nationwide (althoughit was 90Z in Parana). The total deficitwas Cz$51.6billion with losseslargely from the operationalaccount. CIBRAZEM'soperational expenses,net of exchange variations,exceeded operationalreceipts by nearly 502; personnel costs alone are two-thirds of warehousereceipts. Financiallosses stem from: a) low storagetariffs below marketcosts; b) failureto includecapital costs in the tariffstructure; and c) CIBRAZEM's inefficiencyas reflected in high operating costs and overstaffing. CIBRAZEMargues that its mandate to provide storage services in less accessibleand attractiveareas also increasesits costs.

PublicSector Use of Storage

18. Public sectordemand for storage servicescomes essentiallyfrom two types of agenciess those involved in crop buyingand marketing,and those involvedin food supply. In the first group,the largestusers of storagecapacity are CFP, IBC and IAA. IBC and IAA both own and rent warehouses. In 1986, CFP bought about 7 million mt of grainsunder the AGPIEGFprograms. CFP has gradually divested itself of much of its own storagespace, preferring to rent; principal clientsare the publicsector storagecompanies, followed by the cooperatives(which are paid rates close to public sectorrates) and the generalwarehouse companies (which charge much higher rates). CFP generally does not carry over large stocks,but sells at auction,beginning in August. CTRIN is the secondmajor crop (wheat)purchaser, with an annualdemand for storageof nearly3 millionmt. On the marketingside, SEAP (Federal Price and SupplySecretariat), COBAL (FederalFood Company) and CEASA (Central Marketing Organization)also requirestorage. -118- ANNSX III Page 6 of 8

OtherPolicies

19. A rangeof otherGovernment policies have a dire:timpact on the storagesubsector. Government regulation of the industry'stariff structure combinedwith a policy of keeping public sector tariff rateslow has discouragedinvestment. The Governmentprovides incentivesfor holding stocks,including stock financing (the EGF program), and a minimumprice supportprogram (AGF). Under Loan 2727-BR,the Governmentis seekingto establisha futuresmarket, to expand the use of commercialstock financing throughwarrants. Thesepolicies are reviewedin detailin ChapterIV. The Governmentis also responsiblefor establishinggrading and classification standards,and providinggrading services. In addition,the Government intendsto establisha market informationsystem, to improveproducers' and traders'ability to make decisionson stock holding. These two issuesare discussedin ChapterV.

B. GoveramentPolicies and Programs

GovernmentStorate Policy 20. Officialstorage policy is closely linked to overallGovernment goalsof increasingagricultural production and stabilizingfood supply. The AgriculturalProgram's (ProgramaAgricola) strategy focuseson three points: a) investment in basic infrastructure(storage, irrigation, transport)to expand cultivatedarea and increase production;b) use of policyinstruments to stimulateproduction (ruralcredit, minimum prices, regulatorystocks); and c) correctionof institutionaland administrative bottlenecks.Government policy is thus heavilyproduction-oriented, with an emphasison expansion.Government goals for productionincreases are 30? over 1985 productionlevels by 1989,a totalof an additional15 millionmt of grains. 21. Withinthis context,storage plays an importantrole in two areas: in expanding critical infrastructureto support projected production increases,and in establishingstocks to supportGovernment minimum prices and food securityprograms. The essentialcomponents of officialstorage policyare: (a) expansionof storage capacity by some 15 millionmt; (b) establishmentof strategic stocks for food security and market stabilization,equal to 10? of projectedtotal grain production (about 6.5 millionmt); and (c) incentivesfor increasedprivate sector investment in storagefacilities. 22. Governmentplans for expansionof storage canacity put a heavy emphasison collectionstorage (57? of totalneeds) and strategicstorage (27?of total needs). Expansion of collectionstorage recognizes the importanceof local storagecapacity to reducetransport costs. 1 However,it is unclearwhether separate stores are requiredfor strategicstocks; (this issueis discussed in Annex IV). The Governmentestimates that total investmentcosts for its storage program(including both publicand private

I/ See FederativeRepublic of Brazil, Ministryof Transportation,GEIPOT (1982) -119- ANNEX III Page 7 of 8 resources)would total Cz$2.2 billion in 1986 alone (US$157 million equivalent).2

23. On a regional basis, the Government is emphasizing storage constructionin the Center-Vestand Southeastregions, which will absorb35Z and 332 respectivelyof projected investments.The South,relatively well- endowedwith storagecapacity, will require182, and the North and Northeast together,14X. Strategic storage capacity will be spreadthroughout the country,with high concentrationsnear major consumins citiesalong the coast. 24. Governmentplans emphasiz3the central role of the privatesector in carryingout storageand marketingservices, with the Government(through CIBRAZEH,CFP and the Ministry of Agriculture)acting as regulator,price stabilizerand source of market information. Proposed privatesector incentivesinclude a) expandinglines of creditfor storageconstruction b) guaranteedleasing of private stores by public companies for up to five years;c) a programto encourageprivate sector construction and financing of regulatoryand strategicstores; d) surety bonds;e) improvedmarket information;and f) stockfinancing. CIBRAZEN's role would be alteredto one of supervisionand regulationof the industry,and the publicsector companieswould concentrateon storingofficial and strategicstocks.

Government Prozrams 25. The Government has been active in promotingstorage construction through a numberof creditprograms. In the 1960s,the Governmentactively encouragedthe expansionof cooperativesthrough subsidized credit, and the shareof cooperativesin total storage markedlyincreased. The World Bank was involvedin one storage program, PRODESAR,under the GrainStorage Project,3 which supporteda line of credit for storagethrough the Bank of Brazil. Projectperformance was mixed. Although demandfor creditfor storageconstruction in the Southand Southeast(the regions covered by the project)was high, the Bank suspendeddisbursemerts in 1974,and cancelled the remaininghalf of the Loan in 1975, as it was unableto agreewith the highlysubsidized interest rates proposed by the Government. 26. At the same time, the Governmentestablished a new program, PRONAZEH(National Storage Program) to provide funds for collection and intermediatestorage facilities. Interest rates were highlysubsidized under this program,and the credit was very popular.Subsidized interest rates,by subsidizingcapital costs, allowedlower revenue requirements for operatingand financialexpenses. Up until 1978, PRONAZEK financedan estimated1.3 millionmt of on-farm storageand 2.4 millionmt of secondary storAge throughout the country, although predominantly in the major grain

21 At the then-prevailing exchange rate of Cz$14- US$1 plus an additional Cz$715million (US$51 million equivalent)for research,training, re- equipmentof publicsector warehouses, and cold storagefacilities.

3I Loan 857-BR,approved in September1972. See IBRD,Appraisal of a Grain StorageProiect. Brazil (Report No. PA-135a,August 2, 1972)and IBRD, ProjectPerformance Audit Reports BrazilGrain Storage Proiect (Report No. 2590, June 29, 1979) -120- ANNEX III Page 8 of 8 growingregions. Total credit disbursedexceeded US$800 million equivalent. Financingfor PRONAZEHceased in 1979. With the slashingof agricultural creditsubsidies in the early 1980s, investment in storage,as in the rest of the agriculturalsector, declined markedly. Storagecapacity increased by 432 between1975 and 1980 (from 35 to 50 millionmt); in comparison, capacityincreased only 20? between 1979 and 1985 (from50 to 60 million mt). 27. There are presently a number of programs which financestorage constructionand rehabilitation,although none were originallydesigned solelyfor grain storage. Current programs are summarizedin Table 3.3 (main text). In the Bank of Brazil, there are two major lines of credit, originallytotaling about Cz$1.3 billion (US$100million equivalent at the time of approval)sa) PRONAGRI (NationalProgram to AssistAgro-Industry) providescooperative or individual credit to legal entitiesto finance storageor agro-industry(PRONAGRI is partially financedby the World Bank under Loan 2268-BR);and b) PROINAP (Programfor AgriculturalInvestment) providescredit for farm-levelstorage and relatedequipment. A third line, the Programfor StorageExpansion providescredit for cooperativesor state or privatestorage companies for storage at all levels. The National DevelopmentBank (BNDES) has a program which provides creditto rural companies, cooperative',state or private storage companies and agro- industriesin selecteddeficit areas for storageconstruction. BNDES also sponsors FINANE, which primarily finances agricultural equipment, but includeswarehouses and related equipment. In general, however, these creditlines are insufficientfor demand, particularlywith escalating inflation.

28. To respond to the current storage crisis,the Governmentintends to allocatean additionalCz$9.7 billion to storageinvestment programs (about US$40 millionin April 1987),largely using funds from the Rural Development Fund. The creditwill financean estimated 9 millionmt of storage,to be dividedamong the privateand publicsectors as follows:

4 millionmt Privatesector for all storage levels 4 millionmt Strategicstock facilities,for publicor privatesector 1 millionmt Regulatorystock facilities,for public sectorcompanies

The programwill focus mainly on large-scalefacilities (in excessof 20,000mt) and littleprovision has been made for on-farminvestment. The fundswill be handledby the Bank of Brazil (for the privatesector) and BNDES (for the publicsector). -121- ANNEX IV Page 1 of 5

BRAZIL

AGRICULTURALSTORAGE AND MARKETINGREVIEW SECURITYSTOCKS

Food SecurityPolicy

1. Considerableanalysis has been done on the relativecosts and benefitsof alternativefood security policies.1 Countriescan providefor food securityin severalwayst a) reducefluctuations in domesticproduction (throughirrigation); b) reducefluctuations in domesticconsumption through food price subsidiesand support policies; c) establishbuffer stocksin surplusyears to use during deficit periods; and d) importcereals in deficitperiods to make up for domestic shortfalls.Most countriesuse a combinationof these policies, depending on countrysize, probabilityof recurringdomestic shortages, foreign exchangereserves and politics,among others.

2. All these strategiesinvolve trade-offs in costs and benefits,both to the government,and to producers and conss.mers,and selectionof the final mix of policyoptions should be based on empiricalanalysis of the specific country situation. However, policy simulationsby several researchers2 underlinethe ordersof magnitudeof these costs and benefits. In general,use of trade policies, either free trade or stabilizingtrade (whereimports are assesseda levy or subsidyto smoothout fluctuationsin internalprices) provide a high degree of food securityfor relatively limitedcost. The major considerationis the need to have adequateforeign exchange to purchase grain in extraordinaryyears.

3. Achievingfood securitythrough holding largebuffer stocksis not only expensive, but may also be relatively ineffective. Maintaining sizeablebuffer stocksis not cost effective, due to high storagelosses; low capacityutilization of storagefacilities; and high interestcharges on capitaltied up in inventories. Simulationsof levelsof food security (definedas the probabilityof per capitaconsumption falling below 125 kg of grain) and economic costs of buffer stocksunder both free trade and constrainedfree trade scenarios3 show that under free trade,stocks are completelyineffective in achieving the food securityobjective unless the storagecapacity is very high. The minimum storagecapacity having any impactis on the order of 15 kg per capita (in Brazil,this would be 2 millionmt of stocks), while to reduce the probabilityof food security

FPor example, see Donaldson (1984); Reutlinger;Huddleston et.al. (1984);Valdes (1981).

2/ For example, see Reutlinger (1982), Reutlinger and Bigman (1981); Huddlestonet.al (1981).

31 Reutlingerand Knapp (1980). Constrained is definedas includingall or some of the followingconditions: i) constraintson importvolume or the maximum importbill; li) less than perfectlyelastic market demand; and/oriii) instabilityin the import price. Economiccosts included the expected overall annual economic cost, includingconsumer plus producersurplus plus governmentcost. -122- ANNEX IV Page 2 of 5 shortfallsto less than 62 would require storesof 4.2 millionmt, and cost US$0.35per capita,far greaterthan the US$0.02per capita it would cost to achievethe same level of security throughstabilizing trade policy (these are indicative costs for the simulationsand could be expectedto be substantiallyhigher in currentterms). Large stockswould slightlyreduce the importbill, but would also imply very unstableimports.

4. In comparison,food securitycan be slightlyimproved with a modest buffer stock at reasonable cost under free trade. Stockswould increase consumptionwhen importswere constrained due to lack of foreignexchange. However,the model assumes that large improvementsin food securitywould not be possibleunder this system, becausethe same cost factorspreventing increasedimports would also work againstmaintaining large stocks.

5. Researchand policy simulation by other researchersreinforces these conclusions.For example, a policy simulationin Brazil and India4 indicatedthat financialarrangements to reduceforeign exchange constraints (such as the InternationalMonetary Fund's (IMF)Compensatory Financing Facility)are an effective substitute for much more costlybuffer stock arrangements.Reutlinger and Bigman5 also concludethat buffer stockshave only a.marginaleffect on stabilizationwith a stabilizingtrade policy in effect,and thereforegenerate only small gains or lossesto producersand consumers. Their overallconclusion, based on policy simulations,is that most developing countries could achieve a modest reduction in the instabilityof their domestic food prices by maintaininga small buffer stock and by allowingnearly free trade.6 However,the major consideration would be the Government'sability to handleunstable demands on the budget (causedby holdingstocks) and unstabledemands on foreignexchange reserves (causedby importinggrains).

6. Governmentpolicymakers in many countries, however,have voiced concernsover dependingon internationaltrade for food security,in part becauseof world market conditions in the early 1970s,when many countries were forcedto import. Key concerns are i) the possibilityof inadequate global grain supplies ii) affordabilityof grain importsdue either to unstableworld market prices or to lack of foreignexchange; and iii) impact of politicalgrain embargoes.

7. World market conditionshave changed over the past 15 years,and these concernscan be adequatelydealt with. The real price of foodgrains has steadilydeclined in the last decade,and year-to-yearvariability has been minimal.7 Moreover, there have been importantchanges in levelsof stockholdingand reserves: aggregate trade flows are larger, non- governmentalstocks (which are readily available to purchasers)are also larger,and there is a built-in "buffer stock' of grain currentlyfed to livestock(equivalent to 602 of human consumption)which can easilybe divertedto human use.8 The world grain markethas become increasingly

4/ Huddlestonet.al (1981)p. 54

5/ Valdes (1981)

6/ Ibid, p. 210.

7/ See Donaldson(1984).

8/ Since a large proportionof maize in Brazilis fed to livestock,the countryalso enjoys this built-in'buffer stock." -123- ANNEX IV Page 3 of 5 competitive,and offers better informationon price movements,in part throughoperations of futures markets, which allownon-governmental actors to hold stocksprofitably. The creationof a food importfinancing facility in the IMF providesconcessional medium-term credit for countriesfaced with unforeseencereal imports; terms are five years,with two years grace,and favorableinterest rates. In fact, exchange and interestrates have been far more variablethan comodity prices, a factor which would have made buffer stocksvery difficultto manage as a way of stabilizingprices. The impact of emergency food imports on developing countries' balanceof paymentsover the last decadehas been far less than the pressurefrom oil, other importsand debt servicing. Finally,no lesserdeveloped country has ever been preventedfrom securing food importsbecause of politicalaction. The existenceof third-partybrokers willing to sell has providedadequate supplies.

8. Thus, an optimum food security policy would be to dependon internationalgrain markets for unforeseen food deficits. However, followingsuch a grain trade strategyis no substitutefor sensibledomestic productionand stock holdingpolicies. The best food securitypolicy is to encouragedomestic food production (where economicallyrational) and to develop internal production, marketing and storage infrastructure. Countries such as B:azil require incentives encouraging stockholding throughoutthe marketingsystem. In a well-functioningmarket system,there is no need for extraordinarylevels of securitystocks beyond the sufficient pipelinestocks providing flexibility. In this system,stocks are held by a wide numberproducers, traders, industry and other marketparticipants, who sell in responseto price increases and buy in responseto price falls, dependingon their position in the market. Use of the futuresmarket mitigates price risks, encouraging private stockholding,while also providinginformation on expectedfuture price trends,demand and supply.

9. In additionto stabilizingthe national supplyand price of basic foodgrains,countries must do much more to counter fluctuationsin consumptionto achievetrae food security. Even when food suppliesare adequate,segments of the populationare in & state of food emergency,due to lack of incometo purchase food,whether from famineor chronicpoverty. Food distributionproblems to these groups should be addressedthrough targetedprograms. Anotherimportant way of assuringfood securityis an efficientdomestic marketing system which can provide food at the lowest feasiblecost. Thus, it is essentialto encouragestockholding, establish market informationsystems, develop transport infrastructure, and promotean active trading sector than can respond quickly and flexibly to food shortages. 10. In suummary,food security policy in Brazilshould essentially be based on tradewith modestbuffer stockholding.To addressfood securityof lut-income groups, subsidy programs (such as the wheat subsidy)should be targeted, rather than general. Most importantly,domestic marketing, pricing, and storage infrastructureshould be improved, as a better functioningand integratedmarketing system will be betterable to cope with food supplyproblems. -124- ANNEX IV Page 4 of 5

DomesticBuffer Stocks

11. Adequatepipeline and reservestocks are importantto Brazil'sfood securityt the basic que,stion is whether Brazil requires separate, publically-ownedbuffer stocksor whetherthe objectivesof holdingadequate domesticstocks can be met through private sector stockholding. Greater incentivesto the privatesector to hold stocks,through development of a futuresmarket, adjustments in the minimumprice policy and other measures, will contributeto largerstocks within the countryand may obviatethe need for publicly-heldsecurity stocks. Stocks held in the privatesector, coupledwith improved market information systems, will have a greater stabilizingeffect and will have the advantageof greaterflexibility and lower cost to the Government. It is recommended,therefore, that public stock programsbe as limitedas possible.y

12. The Governmenthas also indicated that buffer stockswould be used to intervenein local markets to support prices,although the detailsof this interventionhave not been specified. The Government does not currentlyoperate a full market interventionprogram using commoditystocks. Under the minimum price program, the Government bays agricultural commoditiesat the officialminimum price. Howeverthere is no consistent nationalprogram of market stabilizationusing CFP stocks. Rather,the Governmenthas reliedon export and import restrictionsto controllocal prices.10 The Government'srecord on price stabilization,however, has been dismal,and there is little rer.sonto believethat use of regulatory stockswould be an improvement. In a country as diverseas Brazil,the sheer difficultiesof effectivelyintervening in local and regionalmarkets, and in maintainingand moving stocks are daunting. Regulatorystocks are both potentially destabilizing,if improperly managed, and potentially expensive.

13. The key to price stability and food security lies in the developmentof a marketinginfrastructure using all availabletechniques of hedging,arbitrage and collateralfinancing, to reducethe risksinherent in storing and trading agriculturalcommodities. Development of futures marketsand freeing external commodity trade would providegreater price stabilitythan would a minimumprice program. If, for politicalreasons, a minimumprice programis deemed necessary, one shouldbe operatedat the lowestpossible cost, and with the least negative impact on domestic markets. This would include setting minimum prices below marketprice trends,minimizing Government purchases and stockholding,and definingclear rules for Governmentintervention and stock sales.

Costs of SecurityStocks

14. Establishing and maintaining buffer stocks is expensive, particularlyin comparisonto expected benefits. Estimatedcosts of a 5.2 millionmt food security stocks would be US$765million (Cz$25.3billion)

9/ For example,in 1977 the US began a systemof farmer-ownedreserves, wherebythe Government paid storage subsidies to producersto hold grainon-farm unless prices rose a certainlevel aboutmarket prices. For a discussionof the costs and benefitsof this program,see Salathe et.al. (1981).

10/ For a full discussion of Brazil's agriculturalpricing policy, see IBRD,Brazils Pricing Policy Issues in Agriculture(December 6, 1985). -125- ANNEX IV Page 5 of 5

for the first two years; annual costs thereafterwould be US$140million (Cz$4.6billion) for interestand storagecharges:

Table 4.A Costs of BufferStocks

1987 millionCZS USS million

EstablishmentCost (a) 18,219 552

AnnualStorage Cost (b) 2,197 67

AnnualInterest Cost (c) 2.424 73

TOTAL 22,840 692

Notes: (a) Includescost of purchasing grain, equal to 102 of 1989 productionas projectedby SEPLAN,except for soybeans,which are assumed to require stocks of only 200,000 mt; plus drying,handling and storagecosts for the first year. (b) Includesstorage, fumigation, and gr:ainventilation. (c) Assumesa real interestrate of 152 on the value of grains held.

This estimateis based on the assumption that the Governmentwould hold stocksequal to 10 of 1989 production. No allowance is made for transport,excessive storage losses, or potentialvalue lossesdue to price fluctuations.In comparison,Brazil's import bill for grainswas US$820 millionin 1985: US$591million (722) of this amountwas for wheat,which Brazilcannot economically produce in sufficientquantities to meet demand at highly subsidizedprices (See Table 4.1, StatisticalAppendix). Holding stockswould thereforecost nearlyas much as the grain importbill not of wheat.

15. These cost estimates are predicated on the assumptionthat the Governmentwould hold the maximum buffer stock. However,in combination with a trade policy, and based on further analysis of likelihoodof shortfallsand other factors,these amountscould be adjusteddownward. -126- ANNEX V Page I of 5

BRAZIL

AGRICULTURALSTORAGE AND MARKETINGREVIEW STORAGEINVESTMENT AND OPERATINGCOSTS

StorageInvestment Costs

1. Investmentcosts for grain storage range from the equivalentof US$20/mtstatic storage capacity to US$240/mt. Brazil'shigh inflation rate,widely variable constructioncosts, differentwarehouse designs and materials,and differentdefinitions of storage investmentcosts (withor withoutequipment and civil works included)make comparisonof price quotes difficult. Moreover,limited investment in storagefacilities over the past few years has restrictedup-to-date cost information,thus, unit costs are utsuallygiven in US$/mt of static storagecapacity. This annex summarizes the conflictingand limitedinformation available.

2. Tables5.A and 5.B show cost d,%tafrom a storagemanufacturer and exporter,and from a cooperativewhich is expandingits storagecapacity. The data in Table 5.A are obtainedfrom a manufacturerwho recentlyexpanded into storageexport, and thus could be assumed to be on the low end. Unit pricesfor emergencytemporary storage (composedof a steelwarehouse frame and PVC vinyl walls and no equipmentor cementfloor) range from US$23 to 32 per mt, reflectingeconomies of scale for largersizes. Similarstructures for flat bulk storage (essentiallya corrugated tin roof over a cement floor)range from US$26 - 38 per mt. Self-supportingsteel structuresthat can be built with capacitiesup to 30,000mt of grain and that are equipped with a ventilationsystem have pricesas low as US$20 per mt. It shouldbe noted that these are manufacturer'sprices for flat storeswith limited equipment;silos, requiring more equipment and heavy foundationsare more expensive. In addition,these costs do not includecivil works, and site preparation.

3. The data in Table 5.B is from a cooperativewhich is expandingits networkof storagefacilities in several states. These data betterreflect the total cost of storage construction,albeit of expandingexisting capacity,since they include the cost of civilworks and infrastructure (roads,utilities). The average total cost of constructionof what appear to be silos,ranging from 6,000 to over 30,000mt of staticcapacity, is US$137per mt (costsvary betweenUS$83 to US$ 254 per at). In line with experienceelsewhere, equipment costs are about 46? of total inveetment costs. Figures5.A, 5.B and S.C show the relationshipbetween cost and scale.

4. These costs can be comparedwith a range of other estimates,given under widely varyingcircumstancess

a) Recent feasibilitystudies presented to commercialbanks in Brazil show costs of US$126 per mt for expansionof storage facilities in Mato Grosso (two flat storage units, with combinedcapacity of 60,000mt; equipmentcosts would be 43? of the total)and US$30 per mt in Goias for one 60,000mt unit (the latter was an inexperienced firm that may have -127- ANNEXV Page 2 of 5

underestimated). Feasibility studies should be treated with caution, however, because there is evidence that firms inflate costs to get a higher proportion of bank financing.

b) CIBRAZEM'scomplex in Ponta Grossa (Parant), with a capacity of 20,000 mt in concrete silos cost US$70 per mt in 1979, including extensive handling and drying equipment;

c) A cooperative constructing a new warehouse complex in Minas Gerais consisting of two silos with a combined capacity of 5,200 mt and a further 6,800 mt in flat storage, quoted a price of US$70 per mt;

d) CEAGESP personnel quoted an estimate of US$90 per mt to construct storage expansion, while CEAGESP's development plan for 1987 estimates average construction costs for flat bulk storage at US$50 per mt and for silos at US$200 per mt;

e) A hog breeder in Parant recently constructed a silo unit, complete with drier and handling equipment, with a static capacity of 1,900 mt, for US$75 per mt;

f) A manufacturer supplying units to a public sector storage company charged US$100per mt, but admitted that the real price shouldhave been closer to US$60 per mt;

g) A major private sector storage provider plans to increase storage space in Mato Grosso by 600,000 mt of flat storage; acting as general contractor himself, he estimates a cost of USS50 per mt, in spite of the fact that almost all building material (cement and steel) must come from Sao Paulo or further south;

h) CIBRAZEMhas constructed, on an experimental basis, storage units imported from a Canadian company using new silo design; these facilities have cost about US$240 per mt.

i) A medium-scale manufacturer of smaller units (500-3,500 mt), mostly for on-farm use, quotes Cz$30/bag for a complete unit, with silosonly priced at Cz$16-l8/bag. This is equivalent to about US$30 per mt for a complete unit, or US$16 to 18 for silos only.

5. Recapitulating out of the conflicting and limited information, a tentative estimate for storage costs rangea from US$54 - 90 for flat bulk units, and US$155-140 per mt for silos. These estimates include equipment and associated costs (utilities, civil works, etc.). Within these total costs, the ratio of the cost of civil works to the cost of equipment is about 5545. Construction costs in other parts of the country, particularly in the Center-West, are probably 10-202 higher. -128- ANNEX V Page 3 of 5

6. Figure 5.D graphs the relationship betweenconstruction costs and scale. The argumentof economies of scale has often been used to justify constructionof larger intermediatestores. However,research by GEIPOT in the Ministry of Transportl demonstrates that smallerstores locatedcloser to producersare more cost effective if transportcosts are includedin the analysis.

7. The maximum size of steel silo currently being built in Brazil can hold 6,000 mt of grain. For larger capacities,one has to build a battery of silos. Althougheconomies of scale remain (in terms of cost per mt of capacitybuilt), these are not as pronounced as the economy of scale in buildinglarger single warehouses. The substantial differencesin unit constructioncosts between flat and silo storagewould appear to favor the former. However,flat storage is mainly suitablefor low turnoverstorage of homogenousproducts under good atmosphericand humidity conditions. Flat stores (graneleiros)lack the flexibility of being able to handle multiple products (maizeand wheat, for example)or grades,take more time to unload, and cannot be aeratedas easily. Flat stores also take up substantially more land. In the South and Center-West, where climaticconditions are favorable,land prices reasonableand low turnoverstorage is suitable,flat stores are viable. However, where land prices are high and turnoveris rapid .(particularlynear ports or urban areas),silos are more desirable, despitetheir higher initialconstruction costs.

StorageOperating Costs

8. Informationon actual operating costs is even more limitedthan that on investmentcouts, in part because many public and private firms cannot easily generateper unit cost informationthrough their accounting systems. Based on informationfrom a cooperative,a state storagecompany, and a private generalwarehouse, estimates of cost breakdownsare included in Tables 5. to 5.E. Estimated costs of an on-farm storagefacility are shown in TUle 5.F. These models should be treated with caution, particularlyas costs are projectedin severalinstances.

Returnsto Investment

9. Due to limited information available on storageoperating costs, only one financial model of returns to storage investment has been constructed. The model is based on a proposalpresented for financingfor a 30,000mt facilityin Mato Grosso. Becauseof its locationin the Center- West, investment costs are probably higher than they would be in the Southernstates. The facilitywould be financedunder the PRONAGRIprogram which provides 642 of total fixed investments over a period of 10 years (with three years grace). Yearly interest chargesare 152 plus monetary correction(in this case, OTN, the inflation index of Braziliantreasury bonds). In Year 4, the year of maximumcapital costs, total capitalcosts would be:

Interest US$363,456 Repaymentof '?rincipal US$346.149 Subtotal US$709,605

1/ Federative Republic of Brazil, Ministry of Transportation,GEIPOT (1982);and Monterossoet.al. (1985). -129- ANNEX V Page 4 of 5

In the fourthyear after start-up,operating costs for the facilitywould be as follows: USl$Index

Fixed Costs 200,860 21? VariableCosts 185,593 17X CapitalCosts 709,605 62? Total 1,096,058 100? 10. The impliedestablishment cost of the facilityin question,a flat storagewarehouse for bulk grain,is US$126per mt. This, however,appears to be the cost of a silo facility,not a flat storagewarehouse. The actual unit cost of a flat warehouse of 30,000 mt staticcapacity in Mato Grosso shouldbe aroundUS$60-65/mt, or about half the costs quoted.2 Assuuingan establishmentcost of US$65/mt,the breakdown of out of pocketcosts in the fourthyear would become:

US S Index Fixed Costs 200,860 212 VariableCosts 185,593 19? CapitalCosts 571,071 60? Total 957,524 100l

11. In order to make an approximationof the likelyprofitability of grain storageinvestments, revenues had to be estimated. Expectedrevenues were based on revenuesagreed for the Mato Grossocompany. (This implies annualunloadings/loadings of twice the static capacityof the unit, i.e. 60,000mt). The weighirgand drying facilitiesare expectedto be used by third partiesfor productsnot stored in the warehouseto be constructed. Revenuesfor these servicesare also included. The expectedrevenues are summarizedin Table 5.G.

12. It is clear from this revenue breakdown that storageproper is a modest contributorto total revenue,about 182 of estimatedannual receipts, despitethe fact that constructionof the storagefacilities is the major cost item. This underlines the importance of other services to the profitabilityof a generalwarehouse, " point thatwas repeatedlyemphasized to the missionby both publicand privatesector warehouse operators. Below is a comparison of expected receipts with estimated costs for major servicest

2/ One reasonfor overestimatingthe investmentcosts may be to reducethe de facto equityparticipation in the project to increasethe loan to over 642 of actualcosts.

3/ By the the InterministerialPrice Council, (CIP)as of January1986, and upon full use of the capacityto be constructed. -130- ANNEX V Page 5 of 5

Costs as Receipts Costs I of (US$/yr) (US$Iyr) Receipts Dryingand Firewood 279,385 18,860 72 Fumigationand Chemicals 105,170 6,075 62 Insuranceon Inventories 162,669 54,223 332

These costs do not include machinery, depreciation (in the case of drying equipment)or labor costs; nevertheless,profit marginson these services appearadequate.

13. Costs and revenues,as estimated above, have been used in a cash flow analysismodel to test returnsto investment.The resultsof the base case of this analysiscan be found in Appendix1. An li-yearproject life is assumed,with construction(and hence investment)taking place in Year 1. Summaryresults are as follows:

Internal Rate of Return

.RaseCase (US$126/mtinvestment) 172 Investmentdown 202 232 Investmentdown 302 272 Investmentdown 50$ (US$ 60/mt) 39X

Given the tentativenature of this analysis,sensitivities to factorsother than investmentcosts (suchas revenuesand capacityutilization) have not been estimated.

14. Furtheranalysis of profitabilityneeds to be carriedout. Models could be prepared based on feasibilityreports submittedto commercial banks for storage financing. A systematic analysis of a representative sample of recent submission, together with expertopinion from personnel knowledgeablein the field,should yield a reliableset of cost parameters for financialand economicanalysis. -' 31-

ANNEXV Table 5. A Page 1

BRAZIL

AGRICULTURALSTORAGE AND MARKETING REVIEW

BRAZIL- PRICE LIST FOR'CBL" STRUCTURALSTEEL WlREHOUSES0 (US Dollars- FOB Santos) 2) BAGGEDSTORAGE BULKSTORAGE Static PolyesterWalls Steel Walls Static StructuralSteel Self Supporting Storase price price Storage price price {,apcit unit per unit E!L Capacitv unit per unit per (u.tons) price .ton pricei m.ton pi.tons)ice M.ton price m.ton

800 24,447 $31 25,620 $32 2,500 94,071 $38 1,000 28,455 $28 29,872 $30 3,500 119,040 $34 1,200 32,463 $27 34,123 $28 5,000 150,121 $30 1,400 36,472 $26 38,373 $27 7,500 209,690 $28 1,600 40,480 $25 42,623 $27 10,000 264,885 $26 231,807 $23 1,800 44,488 $25 46,875 $26 12,500 326,406 $26 2,000 48,497 $24 51,125 $26 15,000 322,173 $21 2,200 52,505 $24 53,375 $24 2,400 56,513 $24 59,625 $25 20,000 412,717 $21 2,600 60,522 $23 63,877 $25 2,800 64,530 $23 68,127 $24 25,000 504,900 $20 3,000 68,538 $23 73,377 $24 3,200 76,F27 $24 30,000 596,949 $20 3,400 80,878 $24 3,600 85,128 $24 3,800 89,378 $24 4,000 93,630 $23

1) CBL u Casa BernardoLtd. - Santos 2) All units completewith ventilation/fuuigation,temperature monitoring and loadingand unloadingequipment.

Source:Casa BernardoLtd. - Santos -132-

ANNEXV Table 5.B Page 2

BRAZIL

AGRICULTURALSTORAGE AND MARKETINGREVIEW

BRAZIL - COTIA's CURRENTSTORAGE EXPANSION PLANS - ESTIMATED INVESTMENTS (000 Cruzados)

Investment Costs Current Proposed per per Capacity Addition Civil m.ton m.ton Location (m.tons) (m.tons) Works Equipment Infrastr. Total (Cr$) (USS)

Assai 19,800 aux.eq.') 4,234 5,328 938 10,500 Assis Chateaubriand 24,240 19,980 25,718 17,874 3,408 47,000 $2,352 $118 Bandeirantes 1,470 6,000 3,468 16,833 1,363 21,664 $3,611 $181 Campina da Lagoa 960 6,000 12,974 14,656 2,896 30,526 $5,088 $254 Encantado d'Oeste 6,600 12,000 15,100 18,790 3,400 37,290 $3,108 $155 Goioere 2,580 7,800 9,500 10,300 2,200 22,000 $2,821 $141 Londrina 30,000 aux.eq. 5,079 11,736 3,408 20,223 Maringa 30,000 aux.eq. 6,400 7,700 1,700 15,800 Mercedes 3,180 12,000 16,537 8,174 2,215 26,926 $2,244 $112 Santa Mariana 3,000 19,980 15,000 16,000 2,200 33,200 $1,662 $83 Ubirata 15,600 30,360 32,068 27,063 5,112 64,243 $2,116 $106 Vale do Ivai 3,600 12,000 12,260 9,880 2,550 24,690 $2,058 $103 Guaira 42,000 aux.eq. 3,990 7,270 1,190 12,450 Urai 0 12.000 15.000 10.418 2,200 27.618 $2,302 $115 Totals 183,030 138,120 177,328 182,022 34,780 394,130 UUUUUU= monsoon =W==o== ==saum uu== mosWo

Index: 45% 46% 9% 100S

Averages $2,736 $137

1) Auxiliary equipment.

Source: COTIA' -133-

ANNEXV Table 5.C Page 3

AgriculturalStorage aod larketing leviev

CooperativeStorage Costs. 19MO18M ('000 CZ$M

TOTAL PlBCENTOf COSTPUB COSTP19 IIP8SIItlh COST TOTAL TROOQG3PUT IT 60-lGSACt U000CO$) (At) (CZ*)

Personnel 55,096 53.5S 709,186 77.62 4.66 tlectricity 8,374 8.1S 709,786 11.80 0.71 fuelvood 5,626 5.55 709,786 7.93 0.48 conser. 3,895 3,8S 109,786 5.49 0.33

Depreciation 13,570 13.2S 709,786 19.12 1.15

Iasurance 2,951 2.9% 709,786 4.16 0.25

OtherExpenses (a) 13,551 13.1S 709,786 19.09 1.15

TOMA 103,063 100.0w 709,786 145.20 8.71

Source:COTIA hotes: (a) Includesfuagicides, insecticides, oiland lubricants, adainistrati,e costs,ald taxes. -134- ANNEXV Table 5.D Page 4

nUIL AgriculturalStorage and Suaretig Eerie, Cut Structureof State StorageCtany, 1986/87(a)

uSt I TOTLCOSt ilCh?oF TMonS?" COSTP (CZ$) TOTILCOST (1'000*t) T (CU*) rim COST Admiistrativefhrsonel 2t,486 20.1 6.63 oprationl heronel 381,650 24.82 a.18 otherPeonol Lupeses 68,646 4.6% 1.63 TUFA 10,472 0.7n 0.23 Imac , Fixedsset 86,870 6.12 1.94 elepon 20,068 1.42 0.45 laterand Sewage 1,152 0.1I 0.03 7.11.1.Opertion 5,090 0.32 0.11 kSbotal 856,65 57.92 19.10

VARIALICOSS tan onReeip 50,715 3.4U 1.13 Isuaceon Inentories 65,184 5.8S 1.90 Ceicals 23,453 1.68 0.52 Firewo 84,163 5.71 1.89 hionl Fee 6,580 0.4 0.1S ilectricity 168,397 12.72 4.20 kintea 78,622 5.32 1.75 Office aterial 6,560 0.42 0.1S Toprary kbor 32,109 2.22 0.72 OtherCosts 66,010 4.5S 1.47

Subtotal 622,573 42.12 13.86

NTU 1,479,038 100.0 44,849 32.98 ou: COPAA

Stes: (a) Basd on actul coats fromone COPA storage facility, comprisiti one 10,000mt-silo, one12,636 at-bulk handlingfacility ad ote 2,855-mt g wrehouse. Totalcapacity of the facility is thus 25,493ot. Averagetunover for the year was2.4, andtotal receipts wereCZ$ 2.117,379. -135-

ANNEX V Table 5.E Page 5

BIizIL AgriculturalStorage and Narketilg Review

Coatsof a GeneralWarehouse Company, 1986

ItII St/IUR CMA/T

Personnel 106,880 39.92 llectricity 11,660 6.48 firevood 18,860 6.92 haintelance 120,000 44.00

Depreciatiol 240,000 88.00

Insurance 79,323 29.09

Other(a) 41,730 15.30

TOTAL 626,453 229.71

Throughput: 60,000 at/year

Source:Cuiabasa Aruasens Gerais, Ltd.

lotes: (a)Chesicals, water, telephone, admisistration and contingencies. -136-

ANNEXV Table 5.F Page 6

BRplL AgricultureStorage and Marketing Review

Costsof On-farsStorage (1997CZ0)

CZ$/UNIT TOTALCOST PER YEAR 1. INVESTMENTCOSTS

1,000it bulkstorage facility, inclu. 1,900/at(a) equipeent(drier, etc) or 1,900,000total

Financingunder PROINAP (b): Ownfunds (30X) 540,000 54,0O0 Financingcosts (over10 yrs) 1,815,689 181,569

Subtotal 2,355,689 235,569

Financingunder PRONAGRI (c): Ownfunds (261) 468,000 46,800 Financingcosts (over 10 yrs) 2,038,858 203,896

Subtotal 2,506,859 250,686

11. OPERATIN6COSTS

A. FIXEDCOSTS

Insuranceon Fixed Assets 1.51of value 27,000 Repair& Maintenance 3Xof value 54,000 Contingencies 0.5Zof above 405 Labor 1 worker0 28,800 per yr,incl. social costs 28,800

Subtotal 110,205

B. VARIABLECOSTS THREEMONTH USE (d) SIXMONTH USE {e) FueigationChemicals Phosphate:15 units/et every3 sonths 0.151unit 2,250 4,500 Malagran:500 gr/month 3.7/500gr 11,100 22,200 Firewoodfor Drier (0.2.3 per hour,2000 hr/crop) 60/o3 12,000 24,000 Electricity 600/mo 1,800 3,600 Contingencies 2X 543 1,086

Subtotal 27,693 55,386 -137- ANNEX V Table 5.F Page 7

Costsof On-FareStorage (contd.)

C. TOTALOPERATING COSTS SINGLECROP DOUBLECROP (f)

PROINAPFinancing (61) 137,898 165,591

Ill. TOTALCOSTS

A. TOTALCOSTS

PROINAPFinancing (6b) 373,467 401,160 PRONASRIFinancing (12%) 388,584 416,277

f. TOTALCOSTS PER TON

PROINAPFinancing (6%) 373 201 PRONAGRIFinancing (12X) 389 208

IV. TRANSPORTANDINTEREST CHARGES

A. INTERESTCHARGES

1,000nt maize 15Xfno 862,517 1,000et soybeans 151!mo 1,275,026

B. TRANSPORTCOSTS

1,000at maizeor soybeans 5/sack 83,335 166,670

V. TOTALCOSTS PER TON

PROINAPFinancing 1,319 1,353 PRONA6RIFinancing 1,334 1,360

Notes: (a) Basedon an estimated cost of US$90/it,converted to CISat the rate of CtS20 USM1. (b) Programfor Investmentin Agriculture. Termsare 6%interest plus monetary correctionfor 6 yearswith 2 yearsgrace for civilworks, and 3 yearswith with 1 yeargrace for equipment.Equipment is assumedto be45X of total unit storagecost. Naxiouefinance of 60Xof total costs. Forpurposes of of comparisonwith PRONAGRI,payments averaged over 10 years. Ic) Programfor Investmentin Agroindustry.Terms are 12i interest plusmonetary correction;repayment period of 10years including 3 years grace. Naximum financeof 64Uof total costs. (d) Assumesfarmer has one crop of maize,stored for 3 months. le) Totalvariable costs if grainstored for 12months, If)Assues farmer has two crops, one of maizeand one of soybeans, each stored for 3 months. -138- ANNEXV Table5.G Page 8

BRAZIL

AGRICULTURALSTORAGE AND MARKETINGREVIEW

ProjectedAnnual Revenues for a PrivateGeneral Warehouse a/

USS b/ Breakdown

Weighing,8,000 trucksat Cz$ 19.46/truck 11,120 1Z Cleaning,60,000 tons at Cz$ 24.09/ton 103,245 aZ Drying,60,000 tons at Cz$ 65.19/tonc/ 279,385 232 StaticStorage, 300,000 tons at Cz$ 105.24/mt 225,515 18Z Bulk loadingand unloading,104,000 tons d/ at Cz$ 18.63 138,395 112 Fumigation,4 times/yr.at CzS l.27/mt 105,170 9X Loadingand unloadinglabor for 16,000mt d/ baggedproduct at Cz$ 25.39/mt 29,020 22 Productinsurance 0.32 ad valorem/monthe/ 162,669 13Z Haterialshandling in-store, every 60 days at Cz$ 11.46/mt 127,697 102 Ventilation,10 hrs/monthat Cz$ 0.19/mthr. 42.343 3x

Totalyearly revenues 1,224,550 100x

a/ Implyingannual unloadings, and hence loadings,of twice the staticcapacity of the unit, i.e. of 60,000mt. b/ Exchangerate here Cz$ 14 - US$1 c/ Average,depending on initialmoisture content. d/ The unit will have 26,000mt of bulk and 4,000mt of baggedstorage; with a turnoverof 6 months therewill be 4 timesthese amountsmoved between unloadings and loadings. e/ Based on 260,000 mt of soybeans, valued at Cz$ 2,090/mt (5/86) and 4,000 mt of rice,valued at Cz$ 2,230/mt(5/86). f/ To prevent humidity and heat build-up in bulk storage. -139- ANNEXV huil Table 5.H AgicultuetStorage ad larketigl Iesise Page 9

Costsof Smpettivo toragela) (CU$1587) oti?PRcC TOTALCOST A 1 HIIl traspott to Cooperative 10/sack 161.01 Reception(Itel. weighing,) cloening,loading) ) 5.3/sack 88.34 Drytin(from 18% to lS) ) Cleaoun 1%of set weight(b) 18.40 Storae for 3 us. lOh/oafter Ist to 20.00 Veatilation 5/st S.00 Losses; .01of ot.9ght/day after lst so 10.93 ShareCapital (c) 3%of cropvalue (d) 54.63 SUBTOTAL 364.29 loterestCharges 17U/ofor 3 Noo 928.64 tOTfL 1,292.93

IIt SOTuIS Traspottto Cooperative 10/sack 167.00 ieceptioo,Dryin 3.10/sack 51.6? Cleting 0.5%of ot.oght(s) 13.81 Discountfor Irrelars 1.8%of weight 50.819 Losses .01%of kt.Igkt/day afterlst moth 16.5 ShareCapital 3%of crop value (f) 82.87 SUBTOTAL 382.91 InterestCharges 11S/Nofor 3 sos 1,408.1 TOTAL 1,191.62 lotes: (a) BasedonCocovar,rates of ebunary 24,1987. Asusues crop is delivered0 1% humidity atd2% impurities for mai.e; 16% buidity nd 1.5%imrities (lith 20titroplas) forwbean. Brasilstandard for uoiseis 14 buidity, 1Iimprities. (b)let usightis 950ig, based ona 5%loss dueto drying(IS) ad cloenin(1). (cl Theseextra payments,which provide additional revenue to the cooperatives,are considered to beshares o de by the member. Fuds are oftes usedto offsetstorage investmnt costs. (4)falue isbased onthe larch 198t CIP minimu price for mise of CZ$115/sack160-kg). (a)Loss of 2.5%in ueilht for soybeansafter cleningad drying. (f)Value is baued on the larch 108? CIP mDiniu price for soybeos of CZ$170/sack R68S).

0-Jul-87 -140- ANNEX V Table 5.I Page 10

BIARLL AgricultureStorage and larketing Beviev

Costsof StorageIn a Connercial GeneralWarebouse (a)

?RITP91CM TOTALCOST

A. 1 ITMAIZE

Transport 10/bag 167.00 Weighiag 150/10-ottruck 15.00 Cleaning(b) frog5S to 1I 25.00 Drying(b) from18S to 14 82.41 Loading/Unloading 57.00 Storage for 3 mos. 26.67/mo 80.01 Isurance 0,3Sof ptoduct value 5.61 Fumigation 21.80 Movement 22.00 Administration 10 on services exc. storageinsur 8.89

SUBTOTAL 484,72

Interest 17$/mofor 3 oos 928.64

TOTIL 1,413.36

B. I IT SOYBEANS

Transport 10/bag 167.00 Weighing 150/10-mttruck 15.00 Cleaning(b) from 52to It 25.00 Drying (b) from 18Sto 142 82.41 Loading/Unloading 57,00 Storage for 3 mso. 26.6?/mo 80.01 lIsurance 0.3S of product value 8.29 Fumigation 21.80 Movement 22.00 da'dnistration 10 on services etc.storage&insur 889

SMBOTAL 487,40

Interest 172/mofor 3 sos 1,408.71

TOTAL 1,896.1f

Notes: (a) Basedon rates set by AIIG(Natiotal hssociation ofgeneral Varebouses) inFebruary 1987. (b) Cleaningand drying to Brazilstar4ard for maiteof 142bumidity, I impurities. MIlIL AgrilclturalStorage and arketiagle iea hoparisooofStorf e Tariffs(1987) (a) (M /Motb/tool StATIStOI1t aCO .S C OO P I I I I I I 2 S SUIICK PISC CIUU l COPiSi(b) CISEGO(c) ClAL!? (d) A- PIUUa B - POlUh C - dlTO (AUG) 1. teceptlo 3.60 5.15 5.48 (variable) 106655 104.I0 25.00 26.67 2. beighiog le) 1.35 2.45 26.10 no charge (coveredin 1.) (coweredin 1.I 15I.00 15.0O 3. Unloadig 9.39 9.69 4.56 11.20 (coveredin 1.) (coveredin 1.1 (variable) Ivariablel 4. Cleaonig 8.89 11.53 14.38 S.80 42of veight (coveredin 1.) 60.38 67.63 5. Dryig(a) 63.37 9.89 90.39 19.11 066of weight (coveredii 1.) 90.65 90.65 6. Purification t.31 a/a 156.52 /a 5.01 n/a 21.60 21.10 7. Storage 8.44 15.08 9.13 I.14 10602 15.00 26.6t 26.67 8. Loading 4.68 5.66 (variable) 11.20 (coveredin 1.) (coveredin 1.) (variable) (variable) 9. AdSaloe (f) 0.302 0.302 0.34 0.36S n/a 0.5 5.42 5.4U 10. Adaloistration is) lt 102 lO n 3t 0.2 10t 10 H. Iulln laranats (b) 12.15 nDa 13.70 23.62 ala n/a 50.00 50.00 12. Sre Capital(i) n/a n/a D/a DIa 2 - 3 1.S al/a n/a

Soerce: tariff bulletins of taron copanies

(a) Basedoa aie of 20 buidity and 42inparities, dried to 142hmidity and 1 impurities(razil atandard). (b) hrua state steoraecomn. Ic) Goia state storagecomay. (d SaoPaulo state storage coospn. (e) sses 10-tootrck. (f) 0.15Oof productvalue. (gI 10%of mothl charges (b)hr *arrat. 11) Cooperativesonl. -142- ANNEXV Figure 2.A and 2.B Page 12 BRAZIL

AGRICULTURALSTORAGE AND MARKETING REVIEW

FIGURE 5.A - BRAZIL PNa Po MdTO Ora C\L WWO 33- 32- 31- 30-

~2. j27- 26. 26 24

23- 22 ' . - ...... - I . .- M0 1,200 1.600 2,000 2.400 2.W00 3,200 3*00 4,000 y in m.tor

FIGURE5.B - BRAZIL PRSMm U.TO FMR CLUKa" ORE 371

34 33 - 32 31 30- 29-

27- 2S 25- 24- 23- 22- 21 20

10 v -- - I - 2A00 5.000 10.000 15.000 20.000 25.000 30.000 ceoity In mAton a *tut_cdl + _It suporting -143- ANNE V Figure 5. C Page 13

BRAZIL

AGRICULTURALSTORAGE AND XARKETINGREVIEW

FICURE 5.C - 2FRAZIL ca X oWn - UN" CoNSI.

ISO. IS170 ,

3 140 - 180 120 . 110 100- 07.600 12.000 i*.aso so.N m. diin dof oope.@ -144- ANNEXV Figure 5.D Page 14

BRAZIL

AGRICULTURALSTORAGE AND MARKETING REVIEW

S0.unITCOMM-C.M O MAN STOPAGK

130 -

120

sa j.o.

70

10".O000 1 @.WO 18.000 20.000 25fi.f000 30.000 * po.I to m".Wm O ow fld +4 uti -145-

ANNEXV Appendix1 Page 15 This appendix contains a cash flow analysis of the Cuiabasa project,op.cit., which has the followingcharacteristics:

Its' two proposedunits are to be locatedin two different rural locationsin Mato Grossol each unit will have 30,000 tons of static capacitys it will be flat storage constructions,araneleiro' type, complete with driersmnd materialshandling equipment.

The companyunder study is an experiencedwarehouse operator from Cuiaba,capital of Mato Grosso.

The followingpertains to the analysis:

It is done for a period of 11 years, with the firstyear dedicatedto construction. The project has no revenuenor operationalexpenses in year 1. Given the scarcityof storage space in the area of the project,full capacityutilization has been assumed as of year 2, the year of start-upof operations.

The venture model used was built originally for (agro-) industrialproject analysis, hence the terminologyused in parameterlabela is not entirelyappropriate.

The model does parallelfinancial and economicanalysis. The latteris based on shadow rates for inputs and on border pricesfor tradedgoods. In the absenceof this information for Brazilall shadowand border price factorshave been set to 1, i.e. the financial and economicanalyses are the same with the exception of the treatment of taxes, a transfer paymentnot consideredin the economicanalysis. The latter accounts for the marginal difference in IRR betweenthe financialanalysis, 17.05 in the base case, and the economic analysis,19.27Z.

Assumed tax losses carry forward and depreciations equal to 5Z per year on civil works and 302 on the decliningbalance for equipment, have resulted in no tax obligations through year S of the project. The corporatetax rate in Brazilis 352. * f Fs WifflIX-F$¢sgI i£i !HU

...... it

......

Y*V ~~~ I ...... m e . . . . . |

i ~F g

3 I CC * CCC CCCC CCCC CC* * Ir

A X* C C 9 ,

,...... I. U

~~~~~~~~...... _ ._

...... *o. .e. .. .e .e c ;,.

I iqpuedf =eo@ C =o C . ... - .....* C*...... -

CC ...... I

1RB~~~~~~~~~~~~1 C _._...C ...... __.__._.7

... C . . C .C* .CC C . -t

S S ee * * C@ t txtpusddV ' ' A X3 -iv CUlalE 12D6 bERAlSLTD. - CFO FLOWMl"LSIS OF a *m AM TtoofLlbl iLLKGWtZ SIM FACILITVIft IIIU 6 he ;.

Clell'~~V t ' Eqg2 VW W3 ' M 4 I VW 5 lEMRS't 16'VJ'tEIR 6'IER1s na

ft~ I CU atw Fi. Le. Fe. t . Fm i. E Fi. .m F0 Eo. ie. i. E * Ec. *' tiL k f. fA.

24 Pdt St tS& p t 'W 25 litlty t9411.ltral § '§$** 26 SaIlltt PrImsewJ Prim, ''' ''' a? Fla. R_wAI Ec.VaoIh ' * I 2 2ti ' Z!i 22 226 2t6 226 22: ' 2t6 aft ' 2 26as 22 2 26 ' 22 2a ' 26 22 ' 2 t a

P, 0mutity (fat)}' '''''' 30 SaililqbArmilm Plult* ****J 31 Fla mw_ J ELv Volv ' * c 6 311 303 J 3Q3 J i 311 i 31 13* 3U 11 3U IQ3' 33U 3131t3J | 8 m 113 3

33 Owdty tonst) ' '' ' ''' 36 SelhwqPruW td Prim's4** 35 Fir. 1wom / E aiw Is1*'c ' * t17 79 ' t9 1 * ITS 179 17In m9 s I 7 lS9 179 179 17 I?9m 7 sn917 ,n09 09

31t 5e1ll Prw#trr Ptrl' ' ''''' 39 Fin. two I 1gm 14tW c 14 1411' Uil4 Itl 1411 148 148l 148' 14Z 18 ' td 14 * 148 tZ6 ' t 141 14t tell 148 14 a * at 15 wat. swdl. i*'m ' 41 sutity (Gnt) 42 5eXtl4m Prtm/arl Pem,' 43 FiLv1ua J Eco V&1z ' Cc t 2 2 128 In21 1211 laB Ulee 1211le 12 ¢ 126 1211 126 inWte in 1211 lee 44 Prcwt 16 cttt 1 }' ' ' 45 wtlty tentt '|'' 46 rEl 1 kg PtICW der P ceV* |§ ee T FiLv _oo I Eco Valm t Cc ' t3I 6 163 163 163 163 163 Uut38 I> 1636 i 16363 163' 163 IU 163 ILI 163 fs IttJ

49 total ftwme/otal Ec oIlo'' ila st 3t+31#35O474t' 1,22! 1,2251 'm12 1,!25 ,225'mI'm ,2 1,22S,1 ,e I ,2a t.2 ttzs 225 I,&1,2ZZ! ,2 I,M2 1,225 1,@5 I,25 te,.

XCS ANNEXV -148'k- Appendix I ...... P?#e 18

0 .. A......

* 0 ~~..fl ......

I 0~~...... * . . .--- 0 - -- g

0~~~I -~I -14,9- ANNEXV ...... Appendix. . . I ~~~~Page ~~~~~ 19

$*1;¢ a!; 5w !*}-

WU* O; O51X * ... :. ** - 1t* i

WV* 5 a528'" 5t#

Vf*V*;@ Si !2'* 55f!*!* N a 02-- - ......

a LaSg WV;- a!f- !!!'s N

I

% we.. . _ _.. ee.. _ w .. C

C*_ C; e-C s Ct9

---- S------

*. in -j!!g U

6 .. *...... _.~ . a ...... ___..

14J2 w*s^_ S"'3!i ! iig N j * , C s 3 1|I sJA.A d...... __ ._...... _ ._...... ~~i eIU Ii*-r 51i2'SJ S;'Psw 5p!wuuI!+3 31| lf -150- ANNEXV ...... Appendix I a2 :,8 } , ." a Page 20

;'1 ' s I - - 4 i " ,------* 0

......

. Is -1. .- -...... - ...... _ .

t ,.,1 " - l,

I *1 s-" I

5 S0 I, I~~~~...... a " X =X. e S' *M1 8 { ,u

-5~ ~~~~~~~~~t

§S* I

4 4 IIf

I~~~ EWj - I3'

, !If:' 31ii fiI ;S *Appendix I 00.. 0 .t 0 ~~~~~Page21

0...*0;......

* 0 0 40

I I~~~~~~~~~~~~~~~I * 0 0 0 ......

I~~~~~~~~~~~~~~~~~~~~~ -

I 0 0 e , 5~~~~~~~~~~~~!ss 3~~~~~~~~~~~~~~~~

0Zs00 I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~e 0000 *0~~~~~~~~~;~~0 0 0 0 i3d c

U,~ ~~~ E s -152- ANNEXV *- ...... Appendix 1 Page 22 a~~~~~~~~~~~~

, -

-t

: ...... ------...... I. I~~~~~~~~~~~

_.__-_...._._...... _. _. _._._.

, ...... 5.

I K

=. ~ _

- | ' ~~~'

or

I |1ltl£ " e e a b J*£3i @iSi1 || Wgi NOTES

1.a MAPSECTION IBRD2041 (VENEZUELA ,t (FREIka BRAZIL t . /SURINAMEUIAN, C O LO M B I A,\ / / GRAINPRODUCTION RORAIsZA>,>;>1 - 1986.r ALArC ArI , cE A N

0-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 C~~~~~~~~~~~~~~~~~~~~~~~~ 7 P.0 Mi..

*7 r ~~~~~~~~~~~ZN S NOICR T;oeX CS PR MARANHA k S A; /RIO GRA PEDO NORtTE

PIAUl (- PGBIA sW

c\¢ \ / ' 11 W ; BEAISW1-$rEA SERNAPC

GO3 IAS ? _

BRASiLIA[,/

TOROSSO 3 a&, MINAS GAI j,SPi O R PA L *.lK.oo.SA -~~~~~~~~~~~~~~~~~~~~~~~/0

I V I A TLIA N T 40' B ....L L v ~~~~~~~~~SAO>,A

, , DOW~~~~~~~~~~~~~~~~~~~)SU \PARAGIt AYRANTAYNT>) i I lT IR OCEAN.ForZois (/)~SOUTH6E ~ CHL *

e-J OR Cad._ 0 C E A A/ C.*d.0 ~ ~ ~ WOO HI 11r0f1E., SIot.CtoIs ______0CM 40 ~~~~~~~~~~~~~~~~~~~~~~~~~~GAI P 1966 - k m

PA.RANR l _IRD 20442 Lvr,bbzcni Seut',

I Ak/A . / / BRAZIL $x MLZ

S UTH 41AP _Cs ) / A Mi RICA ' C tERSINA Cata M MS

5 AtIant,v5/_ __ <

/1 ()ceo'iC) BRAZIL Ni RAILROADS cr fEPASA(Sbo Paulo Railroad Company) - RFFSA(Federol Railroad Systm) Co"* ...... (EFVMVit6ria- MinesRailroad Company) h"'" -10, t7* au b ------CVRD(Rio Doce Valley Company)

" &W4*-cMk'*10rf ------IntWrn[HWCl lou4nd*6811 c@MO ow e uowwof ~bo> aedbai S. Jo'.iUw r. U"or "a ft w

aw_owVcorof VidWtoex OCs W~ of r d nwoor ewdaaaS Cf41

8RAS(UA Awl Awopl GOIANIA

0 .Gobnoduro ToSodua Cruz Cormbo 5., /8D 1157/RI tOe. / t t° de,tjon,SO| ff PASA O o dw"

f~~~~~~~~~~~~~~~~~ooni l. ,ncV

< ~ Pooto p P2.o o

PARAGUAY ' I SNO f i t q4Z01B^4gue~~~~~~~~~t

\, e r Uniob } ePoito S

teiz q~~~oiouro - P8RtO AlfWtE ) / ; Anwinb"i50 °I 100 2O 300 400 50 L I I I KILOETERUs

JULY19S7 IBRD 24 iVENE ZU E LA , < FENC ti i ns- l u !/SURINAMEfUA C OL OM B IA >t B vw%'Yh _Fa ,^;mtRORAIMA . , AMP Z : A b*\'\ ^tS : ~~AMAP

| - ~~~~AM .'P Z O S A H O

/ ,> <-> t -- X X . i . , r ' resi~~~~~nalCEARA /RIO°GRANDEDO NORTE

8 , ' S .<. X(,4 9 iR~~~~~~~~~~~~~~P I A U i 9 1 5 9 r57 hParlthoo >___$ 9 NORI>if~~~~~~~~~~~~~~~~~4cieX

. V4 IB OA L I < 1 f Goidnirz j~~~~~~~~A SEGIP

P E R FU JAIrtCzp rt d g lb Hi.>¢ob I

l~~~~~~~~~~~~ !. A f W.& Sft

\>~~~~~~~~~~~~~~~ Rn m5 Sc; R0GRAD DO SU 9StClvm e * I U8e>VAXPWaf ) , ~~~~~~cui,%. 1 qg; (¢1 >Z1z,vl/s >__ J Z o>, ew ,*; / lltETE~~RASI, lohIes00233,40s

< Wr ( t \ z XtGC;b MILES O T6D Qdo300hGointeg tant e } 5/ ~~~<{URUGLUI Ii,'A . , d5 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~"s~~~~~~~~~~~~~~~~~~~~.flv % -- 1z- t,- .C , t4 r JUn19i ISRD20449

iv " VENEZU 42 W

COLOMBIA YN

1).KiziR4uMA...dnAMtAPA

Atlantic Oceon

AC ~ ~ ~ ~ ~ ~ I

IA

BRAZIL 4 ,5 0 4 -riRNOE DOcoNO-Bo pcc~~~~AAONA / ( 2MA 1 BOLIXHIGHWAY NETWORK

__ ngPa*d . 2 )', V ° c X v*4>rS \\~{%)v 2V ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~UnderCennivuelon

Tu.nIu. Ports

Atlantic a .Llfl da Ba,adW Ca,hef CandTwans~u

Ocean, State Bour4lorles~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AGSTm